Percentage deductibles are a great way to save money, right?
Your agent from company X calls you up and says, “Great news, we can save you some money on your homeowner’s insurance this year. We are going to change your deductible from $1,000 to 1%. Your annual premium will decrease by $250 per year!!”
Wow! You can save me over $20 per month! I’m in!
Fast forward six months. You go out to dinner with your wife and kids to celebrate Father’s Day. Your son goes downstairs after you get home to watch TV. All of sudden you hear, “Dad!!! Get down her fast!” You run down downstairs to see what the problem is. Your foot hits the basement floor and you know exactly what the problem is. Water! And it’s everywhere! A water pipe in the ceiling burst and now you a have waterfall in the middle of your living room.
You run in the mechanical room and turn off the water. You grab your phone and Google the closest water restoration company. Your next phone call is to your insurance agent. It sure is nice to have insurance when these things happen.
Fast forward three days. The water restoration company has the mess cleaned up and a contractor is just finishing up the repairs to the living room ceiling. You get all the bills in the mail a few days later for the repairs. The total of the repairs comes to $4,800. Ouch! I would hate to pay for that out of pocket!
The next day you turn your bills in to your insurance company. The adjuster reviews the invoices and gives you a call. Here is how the conversation goes:
“Hello Mr. Smith, I have reviewed the invoices you sent me and it looks like the repairs are less than your deductible.”
“What? Can you explain that to me?”
“Yes, of course Mr. Smith. Your home is insured for $500,000 and you changed your deductible at your last renewal to 1%. Therefore, your new deductible is $5,000 per claim”
“No, that can’t be. I changed my deductible to 1% but I thought it was 1% of the amount of the loss”
“I’m really sorry Mr. Smith. A 1% deductible is based on the amount that your home is insured for. You might want to talk to your agent. I am going to close the file on your claim. Thank you!”
Don’t let this happen to you! Review your policy and make sure that you understand exactly what you are buying. Better yet, send us a copy of your policy and we will help you review it. No one likes surprises, especially after a loss.