Understanding How Percentage-Based Deductibles Work in Insurance! | Blog

When choosing an insurance policy, most people are familiar with  flat-rate deductibles
 (e.g., $500 or $1,000). However, some policies use a  percentage-based deductible
 instead. This means your  out-of-pocket cost
 isn’t a fixed amount but a percentage of your  coverage limit
.

This type of deductible is common in  homeowners insurance
, especially in areas prone to  hurricanes, windstorms, and earthquakes
.

A  percentage-based deductible
 is calculated using a set percentage of your  total coverage limit
, not the amount of damage.

• You have a  home insurance policy
   with a  coverage limit of $300,000
  .
• Your deductible is  2% of the coverage limit
  .
• If you file a claim, your out-of-pocket cost would be:

$300,000 x 2% = $6,000 deductible

So, if your home has  $15,000 in storm damage
, you’d pay  $6,000
, and insurance would cover the remaining  $9,000
.

Insurance companies use these deductibles to:
✔  Reduce overall claim costs
 💵
✔  Encourage policyholders to maintain their property
 🛠️
✔  Adjust risk in high-risk areas
 🌪️

Percentage-based deductibles are most common in:

• Hurricane-prone states
   (e.g., Florida, Texas, Louisiana) 🌊
• Tornado-prone areas
   (e.g., Midwest states) 🌪️
• Earthquake coverage
   (e.g., California) 🌍

👉  If you have a high-value property, a percentage-based deductible could mean a much larger out-of-pocket expense.
 Always calculate potential costs before choosing a policy.

To avoid large unexpected costs, consider:

• Choosing a policy with a cap on percentage deductibles
   🏠
• Setting aside emergency funds
   💰
• Reviewing your deductible options with your agent
   📞

While percentage-based deductibles  can lower your premium
, they can also mean  higher costs after a disaster
. Understanding  how much you might pay out of pocket
 can help you make an informed decision.

📌  Need help choosing the right deductible? Contact your insurance provider for a personalized review.

Would you like  help reviewing your current policy?
 Our team at Vargas & Vargas Insurance ia always ready to be of help, you can reach our team at 617-298-0655.