For those who were asked about their property deductible, most would laugh.
“Me? Of course I know there’s a deductible. What kind of fool do you take me for anyway?”
Well surprise yourself. Many people simply assume that they know what type of deductible comes 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.
Sample question: do you know the answer?
Q: You do not live in Texas but own property there. He has a five percent deductible associated with his $500,000 coverage at his 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 reimburse you $75,000 (five percent of the total value of the property)
If #1 was your answer, you failed the test! The correct answer would be #2!
Unlike most states, in Texas, the five percent deductible refers to the full value of the property, also known as the TIV.
Those who live in Austin, Dallas, Houston, San Antonio, Irving or anywhere else in Texas where Mother Nature wreaks cyclone havoc 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 resulting from violent storms, insurance companies always set high deductibles so that damage liability risk is pooled along with property policy owners.
What about the higher loss scenario?
Example of building deductible in case of wind damage:
• Your building is valued at $5 million
• There is a five percent deductible
• You are not covered for $250,000!
Example deductible for an apartment complex incorporating 3 buildings in case of 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
• You are not covered for $100,000!
Moral of the story
If there is one thing a homeowner can learn from the above it is to educate themselves on the contents of their policy, as well as to use the services of a reputable and qualified independent insurance agency who will point them in the right direction.