Have you looked at your Ohio homeowners insurance policy lately? Hint: it’s Ok if you say No. Insurance policies aren’t exactly the most exciting or interesting reading.
However, there’s a trend that’s gaining momentum and it MAY affect you without you even knowing it: a percentage deductible.
Let me tell you- if you don’t understand what the deductible means and how it affects you at claim time, you might be in for a nasty surprise. Many newer policies now include a percentage deductible INSTEAD of a dollar amount (5% versus $1000 for example). Read on for more explanation and for how these differences add up big at claim time.
Typical homeowners insurance deductibles
The “original” homeowners insurance deductible is a flat dollar deductible, like $500 or $1,000. However, many insurance companies are introducing percentage deductibles, for both new policies and existing ones. This can often be a big surprise, especially for existing customers.
Earthquake coverage has long used a percentage deductible- 2% and 5% are both common examples. The percentage is multiplied by the amount of coverage on your home and that equals your deductible.
What the percentage (%) deductible means to you
Here’s an example of how the percentage deductible works.
Let’s say you have a 1% deductible. Your home’s dwelling coverage is $200,000. $200,000 x 1% = $2,000. Like any other deductible, this is the amount you are responsible for in the event of a covered claim.
If your home is insured for $500,000, then you would have a $5000 deductible. Big difference! But they both would be listed as 1%.
How about a 5% deductible? Taking the above examples, it’s a simple math problem. $200,000 x 5% = $10,000. And $500,000 x 5% = $25,000.
Please note that I’m not opposed to percentage deductibles, HOWEVER, you need to be aware they exist and without diving into your policy, you won’t know what you have. Don’t wait to find out at claim time!
What should I look for when shopping my homeowners insurance?
So maybe you want to shop your homeowners insurance. Whatever the reason is, you’ll want to be extra careful you know what you’re looking at on the quote.
For example you have a $500 deductible on your current policy. The quote shows a 2% deductible. Your dwelling coverage is $200,000. $200,000 x 2% = $4,000 deductible. Um, that’s not even a close comparison to your current coverage!
Yes, you may see a cheaper premium, BUT you’re also increasing your deductible by $1,500.
Lastly, since most homeowners insurance policies include an inflation endorsement, the amount of dwelling coverage will increase each year. This also means your percentage deductible increases. Flat dollar deductibles stay the same year after year.