Understanding Percent Deductibles on your Personal Policy

By: David Keller

Insurance Cleveland Heights

Weather related property damage has created increased expenses for property insurance. Within the last few years, consumers have seen multiple deductible changes Included mandatory minimum deductible, tiered deductibles based on home values, separate fixed wind and hail deductibles, and percent deductibles.

Deductibles are the portion of the claim that you, as the property owner, are responsible for paying. The percent deductible is a common deductible that has been included on many policies, but most consumers don’t fully understand how that will impact a loss settlement.

First, the percent deductible is typically only applicable to wind and hail damage. Policies containing a percent deductible typical have a separate deductible for all other covered losses.

Most homeowners insurance policies and dwelling fire insurance policies are required to be written on a replacement cost basis. Replacement cost is the total cost to rebuild, repair, or replace the property with like kind and quality in terms of construction materials. Coverage A, the Dwelling limit, will indicate what the reconstruction cost of your dwelling is. This section This information is critical to understand because this determines the portion that the property owner is required to retain in the event of a loss.

The percent deductible states that in the event of a wind or hail loss, the property owner is responsible for 1% of the Coverage A, or the limit the physical dwelling is insured at.

Claims Example Quiz:

Your dwelling incurs extensive hail damage from a storm, thus requiring your roof has been declared a total loss and needs to be replaced. Your policy indicates that you have a $1,000 deductible for all other perils  and a 1% deducible for wind and hail. Your Coverage A limit is at $432,000. The estimate to replace your roof is $15,000. What portion of this claim are your responsible for paying?

A. You are responsible for paying $1,000

B. You are responsible for retaining $4,320, since this is 1% of $432,000

C. You are Responsible for paying $1,500 since this amount is 1% of the total cost to replace the roof.

D. You are responsible for paying nothing since the roof was completely destroyed and declared a total loss.

Quiz Answers:

The answer is Option B since the insurance contract states that you are responsible for retaining 1% of the Coverage A limit when you incur a wind or hail loss.

Option A is the deductible for all other perils. For example, if you have a fire, pipe burst, theft, vandalism, or any other loss (excluding wind and hail), you will be subject to the standard $1,000 deductible.

Option C, 1% of the claim, is incorrect since the loss provision states that the percent deductible is determined by the dwelling limit limit.

Option D is incorrect as well. Some policies will waive your deductible in the event of a total loss. Although the roof incurred extensive damage and was declared a total loss, the remainder of the dwelling did not incur damage. Thus it was not declared a total loss. Keep in mind that this particular provision may not be a term within your policy.

In conclusion, it is important to read your homeowners or dwelling fire insurance policy to fully understand how a loss will personally impact you financially. Prior to putting in property claims, it is important to fully discuss the situation of the loss with your agent. Your agent will work with you to help you determine if it makes sense to submit the claim and that you understand how it will impact financially during the claim as well as how it will impact your ability to secure competitively priced property insurance.

Give us a call at 216-965-0646 or email dkeller@kellernational.com to review your current insurance policies and to discuss potential replacement options.

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