Policy structures can vary slightly based on state or region. This is particularly true for deductibles. In simple terms, the deductible is the part of the claim paid by the insured. The deductible amount is ‘deducted’ from the claim settlement, making it an out-of-pocket expense for the homeowner if you have a loss.
Many insurers offer a fixed deductible for most claim types but use a percentage-based deductible for wind and hail claims as well as hurricane damage and damage caused by a named storm.
For example, you might have a $1,000 deductible for most claims but a 2%, 5%, or 10% deductible for wind, hail, or hurricane claims. A fixed deductible is easy to understand, but percentage-based deductibles are based on the rebuild cost of your home. The rebuild value creeps up over time as the cost of labor and materials increases. As a result, a higher deductible can be extremely costly if you have a loss.
For example, if your home has a rebuild value of $400,000, a 2% deductible means you’ll pay $8,000 of the claim. This structure, while expensive if you have a loss, is common. However, let’s consider a 5% deductible for the same home. Now, a loss results in a $20,000 out-of-pocket expense for the homeowner. A 10% deductible results in out-of-pocket costs that simply don’t fit the budget in some cases.
Review your deductibles with your agent to ensure that the numbers are realistic for your budget. In many cases, the premium savings may not justify the risk. Also, consider building a separate savings account to cover deductibles and other out-of-pocket expenses.
