Sunday, April 21, 2013

Percentage Deductibles--Huh?

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Have you ever heard of a Percentage Deductible? We're all used to insurance deductibles where we pay the first $250, $500 or $1000 of a claim (the higher the deductible, the lower your policy costs), whether it's car, home or renter's insurance. I attended a conference where the Maryland Insurance Administration gave a great presentation on insurance, feeling pretty proud that I already was aware of the various points the presenter was covering when, out of the blue, she told us to be wary of "Percentage Deductibles".  No one in the room had ever heard of them. She described them as this: instead of a set amount, and generally for certain specific coverages, you pay a percentage of the damage. So if you had a 20% percent deductible and your house was destroyed costing $250,000 to rebuild it, you would pay $50,000 out of your pocket. She further explained that the consumers who complained to her office about such deductibles had no idea they even had that and that it was devastating to them to incur such costs. You could hear a pin drop in that conference room as all of us were stunned.

Needless to say, I immediately checked my homeowner's policy when I got home. Sure enough, we have a 20% deductible on a rider we have for earthquake insurance (hey--it could happen--don't judge) meaning that we could potentially be out of tens of thousands of dollars if our home was damaged by an earthquake.

My insurance company, after quite nicely listening to me fume about how this was never fully disclosed etc, informed me that the only way to have earthquake insurance was to have a percentage deductible--but they could lower the percentage to 10% for $3 a year. I'm not happy--why don't they just write the policy for 10% and charge the $3 without the consumer having to know to ask--but I'm at least thankful that I've cut my risk in half. The Baltimore Sun newspaper covered this unknown issue which came up via Hurricane Sandy-apparently if the National Hurricane Center issues a hurricane warning for Maryland, insurers can charge a percentage deductible for any damage done by the hurricane.

We often get insurance and hope for the best--but take some time to check your policy and minimize your risk.