November 3rd, 2014
A new type of home insurance deductible is growing in popularity and homeowners need to pay careful attention to how their policies work. For years, the homeowners insurance industry has used flat dollar-amount deductibles for plans. These deductibles have been straightforward amounts depending on the value of the plan.
However, now many insurers are moving to percentage deductibles, meaning a homeowner's deductible will depend on the insured value of the home instead of being a flat fee. According to Reuters, State Farm uses percentage-based deductibles for a large number of its policies and other companies including Allstate, USAA and Nationwide offer the option, but have yet to track how often it's used.
Whether homeowners are given percentage deductibles as an option can also depend on the state they live in. Texas insurers, for instance, almost always use percentage deductibles now, Reuters reported.
Is it a significant change?
Moving from a flat fee to a percentage deductible can be a major or insignificant difference depending on the homeowner's policy. In some cases, switching to a percentage model from a flat fee raises deductibles, Reuters reported. For homeowners who had a $500 deductible on a $250,000 policy, they could now have a 1 percent, or $2,500 deductible.
In other cases, the change can have little effect on a person's out-of-pocket expenses. A percentage-based model may create a slightly higher deductible, but homeowners can lower their premiums, balancing the difference in their budgets.
Should you be worried?
Over the years, your homeowners insurance rates and deductibles are likely to climb. It's an unfortunate fact of homeownership. However, higher deductibles are not always your enemy. By purchasing a plan with higher deductibles, you often have lower monthly rates. You just need to make sure you have a healthy savings in case something happens and you need to cover the amount of your deductible.