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For those posed with the question about their property deductible, most would laugh it off.
“Me? Of course I know there is a deductible. What kind of fool do you take me for anyway?”
Well, be surprised. Many folks just assume they know what kind of deductible comes along with their property policy. In states like Texas, however, where nature’s storms are common, the amount associated with a deductible is not a given for those living 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 damages from a hurricane. How would you explain your 5% deductible in relation to the amount that the insurance company will recompense you?
1. Does the insurance company reimburses you for $95,000 (five percent of your claim’s total)
2. Or does it reimburse you for $75,000 (five percent of the property’s total value)
If #1 was your answer, you flunked the test! The right response would be #2!
Unlike most states, in Texas, the five percent deductible refers to the property’s total value, also known as TIV.
Those living in Austin, Dallas, Houston, San Antonio, Irving or any other spot in Texas where Mother Nature wreaks her cyclone havoc are far more familiar with deductibles and pertinence to the total value of owned property. That is why the average Texan would probably have chosen option #2. Because of widespread damage and losses as a result of violent storms, the insurance companies always affix high deductibles in order for damage liability risk to be pooled together with the property policy owners.
What about the scenario of bigger losses?
Example of building deductible in the event of wind damage:
• Your building is valued at $5 million
• There is a five percent deductible
• You are not covered for $250,000!
Example of apartment complex deductible incorporating 3 buildings in the event of wind damage:
• Your property incorporates 4 strips of ten places of residence, each valued at five hundred thousand dollars, equaling a total of $2 million
• 1 strip is destroyed from the storm and there is a five percent deductible
• You are not covered for $100,000!
Moral of the Story
If there’s anything a property owner can learn from the above is to get educated about the contents of your policy as well as to utilize the services of a qualified, reputable independent insurance agency that will steer you in the right direction.
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