Percentage vs. flat (or fixed) deductible
Every homeowners policy has a deductible. It’s important for you to look at your policy and know if you have a flat deductible (also known as fixed) or a percentage deductible.
What’s the difference between a flat deductible and a percentage deductible?
A flat deductible can vary widely on standard homeowners policies – anywhere from $500 to $10,000, as an example. The benefit of a flat deductible is you’ll know the exact amount you’ll be responsible for out of pocket should anything happen to your property in a storm situation. Your deductible isn’t going to fluctuate over the course of time as the value of your home changes.
A percentage deductible is based on your dwelling coverage (also called Coverage A, which covers the cost of rebuilding the entire structure of your home). Let’s say you have a $400,000 home with a 1% wind/hail deductible. Your deductible is going to be $4,000 because it’s based on your home evaluation. Looking at where we’re at currently with building costs increasing, the value of your home and the cost to rebuild is going to increase as well.
Many homes are worth significantly more than they were originally. For example, the home you thought was once $400,000 could now be valued and insured up to $430,000 or $500,000. That means your percentage deductible is also going to change based on your new home evaluation, making your deductible higher than you originally expected. Many percentage deductibles range from 1% to 2% but can be even higher – up to 5% or 10%. It all depends on your homeowners policy.
Summary
If you have a flat deductible your rate is set and will not change, so you always know what it’s going to be should you have to file a claim. Some insurance carriers mandate a percentage deductible based on the hail and wind scores that come through from an insurance rating standpoint. In that case you have little control, but if given the option it’s advisable to choose a flat deductible over a percentage.
Reach out to Ray Ames to discuss your insurance and learn which deductible option is right for you.
