What is My Deductible?

When you are evaluating which insurance option is best for you, it’s important to know – do you understand your deductible?  What your deductible amount is and how it is applied can really make a big difference when comparing your insurance options. Only looking at the annual premium amount and not taking the deductible amount and structure into account can result in a very costly mistake or surprise when filing certain property damage claims.

Let me explain…at a basic level, your deductible is an amount of money that you yourself are responsible for paying toward an insured loss. When a disaster strikes, the amount of the deductible is subtracted, or “deducted,” from your claim payment. Meaning, if you have a $5,000.00 deductible and file an approved claim that totals $50,000.00, you will receive a check from the insurance carrier for $45,000.00 – the claim amount less your deductible amount.

How Can Different Deductibles Affect my Coverage?

Now though, what happens when you see that the deductible is different for a Water Damage claim and that deductible states $5,000.00 per unit? When a common element water source causes damages, each effected unit is responsible for a per unit $5,000.00 deductible. If 10 units are affected, that insurance claim total deductible is now $50,000.00.  So, as I’m sure you can see, if you manage a high-rise style building and have a water damage claim that has occurred on one of the higher floors, a lot of units below can be affected and each one will have their own per unit deductible.  Maybe the cost savings of having this type of deductible makes sense or possibly spending more annually and not having this per unit deductible makes more sense depending on your risk exposure.  Either way, it’s something that needs to be understood and considered.

Another type of common deductible is a 1% or 2% Wind/Hail Deductible. This means that if your building(s) roof(s) are damaged by a wind/hailstorm and you file an approved claim for these damages, the deductible is now a factor of your property’s total insurable value or TIV. Your TIV is the total amount the insurance will payout in the event that your property is a total loss. If your property is insured to a TIV of $10,000,000.00, the deductible at a 1% wind/hail deductible would be $100,000.00 or at a 2% wind/hail deductible would be $200,000. Now let us assume your TIV is $50,000,000.00, because you manage a sprawling townhome type property, and all your roofs are affected by that wind/hailstorm. That 1% now equals $500,000.00 and that 2% now equals $1,000,000.00. So, in the event of a wind/hail claim, with this type of deductible, you need to understand that the association will probably be paying out of pocket for most if not all the roof repair/replacement. Again, this is something to look at and understand before deciding on which coverage is better.

If you have any additional questions on the difference in deductible structures or are unsure as to what your current policy has, the team at Crum-Halsted Chicago is always here to help.

by Fred Schroeder