For those who were asked about their property deductible, most would laugh.
“Me? Of course I know there’s a deductible. What kind of a fool do you take me for anyway?”
Well, surprise yourself. Many people just assume they know what kind of deductible comes along with their homeowners policy. However, in states like Texas, where natural storms are common, the amount associated with a deductible is not a given for those who live out of state.
Example question: do you know the answer?
Q: You don’t live in Texas but own property there. You have a five percent deductible associated with your $500,000 coverage on your building in Austin, Texas. Your building sustains $100,000 worth of damage from a hurricane. How would you explain your 5% deductible in relation to the amount that the insurer will reward you?
1. Does the insurance company reimburse you $95,000 (five percent of your total claim)?
2. Or refunds you $75,000 (five percent of the total value of the property)
If answer number 1 was your answer, you failed the exam! The correct answer would be #2!
Unlike most states, in Texas, the five percent deductible refers to the total value of the property, also known as TIV.
Those who live in Austin, Dallas, Houston, San Antonio, Irving or anywhere else in Texas where Mother Nature wreaks havoc with cyclones are much more familiar with deductibles and the relevance of total property value. That’s why the average Texan would probably have chosen option #2. Due to the widespread damage and loss as a result of violent storms, insurance companies always set high deductibles so that damage liability risk is pooled together with homeowners property policies.
What about the biggest loss scenario?
Example of building deductible in case of wind damage:
• Your building is valued at $5 million
• There is a five percent deductible
• Not covered for $250,000!
Example apartment complex deductible incorporating 3 buildings for wind damage:
• Your property incorporates 4 strips of ten residences, each valued at five hundred thousand dollars, which equals a total of $2 million
• 1 strip is destroyed by the storm and there is a five percent deductible
• Not covered for $100,000!
Moral of the story
If there’s one thing a homeowner can learn from the above, it’s to educate themselves on the content of their policy, as well as use the services of a qualified and reputable independent insurance agency to steer them in the right direction.
