In the case of most commercial and residential property insurance policies, a deductible is part of the equation. Unfortunately, it can become difficult to gain a thorough understanding of how these deductions affect your policies and how to discern between flat deductibles and percentage deductibles.
Thankfully, we have compiled some information on the matter that will explain this subject in more detail, with what you need to know about deductibles as they relate to your commercial property and homeowner’s insurance policies:
The Purpose of Deductibles: Commercial Property vs Homeowners Insurance
The main purpose of deductibles is to keep insurance policies affordable. Since small claims are costly to adjust for insurers, driving the cost of premiums up company-wide, setting a deductible can make it more financially wise to cover the cost yourself instead of filing a claim when the issue is small.
Deductibles also give you as the customer a chance to choose how to utilize your premium dollars. For example, you can choose to opt for a higher deductible for a lower regular premium. In both cases of homeowners and commercial property insurance coverage, you can usually choose between a few types of deductibles, including the most common options, flat or percentage deductibles.
Percentage vs. Flat Deductibles
Flat, also called straight, deductibles are associated with commercial property insurance and homeowners policies. A flat deductible means that you are given a set or specified dollar amount that applies to each loss, no matter the claim amount. This flat agreed-upon rate is then subtracted from a covered loss with the remaining amount paid out to you as the policyholder. Flat deductibles apply to each occurrence. Therefore, if more than one situation occurs during a policy period, each one will have its own flat deductible applied.
For example, if you have a $2,500 set deductible with a $250,000 limit and have a $50,000 loss, then your claim will pay $47,500, which is the remaining amount after the $2,500 is deducted from the $50,000 claim.
Percentage deductibles also apply to both commercial and homeowners policies. With a percentage deductible, a set percentage based on the value of the damaged property is set as the deductible. Therefore, the deductible will be different based on the claim and the value of the property in question.
The Use of Percentage Deductibles Is Increasing
In some property policies, especially in certain states, there can be a deductible applied to wind or hailstone damage called a wind/hail deductible. This is a percentage deductible and is usually the percentage of the value of your insured building. This is an increasingly popular type of deductible especially in the Midwest as this area is more prone to this kind of damage. This can be a way to make a policy more affordable when the risk is high.
So given this information, let’s use an example. Let’s say that a homeowner has a $350,000 home with a 1.5% wind/hail deductible. In the event of a hail storm or a tornado that causes damage to their home, the deductible would be 1.5% of the insured value of the home which would be $5,250.
Bottom Line: You Can Make Sense of Flat Versus Percentage Deductibles
Fine-tune your policy to get the most value and protection for your home or business’s property, but do not do so without the expert guidance of your trusted agent. Contact us at Winter-Dent to learn more about what type of deductible makes the most sense for your needs and policies.