Flat vs. Percentage Deductible

When buying home insurance, there are confusing terms that you have not heard before. Then, your agent says something like “percentage deductible” and you cringe at the thought of mixing math with insurance.

We’re here to help make the insurance buying process easier. One way we do that is by explaining insurance in simple, easy-to-understand terms.

Home insurance requires that you choose a deductible limit. What is a deductible? In summary, it’s the amount of money you must pay on a claim before the insurance company will pay the rest. However, often, the money does not come out of pocket, but comes out of the total amount the insurance company will pay out. As the insured, you are responsible for the deductible.

Now that you have a basic understanding of what a deductible is, let’s talk about the different types. There are options when it comes to deductibles. Two of the most common types for a home insurance policy are: flat deductible, and percentage deductible.

What is a flat deductible? “Flat deductibles” are the most common form. The amount which you will pay is determined when you purchase your policy. You will have options to pick from, a higher deductible and a lower deductible. There are pros and cons to both. (Why would anyone want a high deductible?

Flat deductibles work like this: Say your deductible is $5,000 and the claim is a $20,000 roof replacement. Your deductible comes out of the total payment and you receive a check for $15,000.

What is a percentage deductible? The deductible is a percentage of the total limit of the dwelling coverage A you have on your home. For example, if your home is insured for $200,000 and the deductible is 1% of that coverage, you are agreeing to pay a $2,000 deductible.

Having a high deductible or a percentage deductible can save you money on your insurance policy. These deductibles may work for you if you live in a low-risk neighborhood–how is the weather? Is there a high crime rate? Are you financially able to take on a higher deductible if an occurrence destroyed your home? Talk more with your independent insurance agent to pick the right type of deductible for your needs.

Deductible types vary upon coverages. Often, there are different types of deductibles for earthquake, hurricane, wind or hail, and flood insurance, all depending upon your insurance company and the state you live in. Due to the increase in hail claims, percentage deductibles are becoming much more common. Check with your independent insurance agent to learn about the types of deductibles you may have.

By: KayLynn P.