The Higher the Deductible

I worked the agent online submissions this week.  Generally, I volunteer for this because I like talking to the new agents and finding out about them, their offices and what they write.  And, I’m never disappointed.

Insurance protection info text arrangement concept word cloud

For instance, I had a submission for an agreed value policy with a low value vehicle valued between $2500 and a deductible amounts of $5000.  So, the insured would owe the company $2500 in the event of a loss?  And who is going to tell them that?

I also received a submission for a Homeowner’s policy from the Dakotas with a 2% Hurricane deductible and a question – do I have any higher percentages?   There are no hurricanes or tornados – let alone a lot of people – in the Dakotas. But maybe this is a roundabout way of saving premium?

At this point, I notice many of the mortgage companies are asking if the policy has this deductible.  I assume with climate change many of the folks in banking are now familiar – more than they want.

Deductibles are very slippery creatures.  The agent and the insured see the deductible as a way to save money.  As an agent I can remember conversations about the company raising the prices and offering a higher deductible to bring the premium back down to ‘normal’.  It’s a save now, pay later deal.

On the other hand, the company sees this as a way to ‘share the risk’.  If an insured has had claims and/or has a borderline acceptable risk, the company may add a deductible to save the business.  Often, this is when the insured feels they are being penalized – which they are – by the company.  But, still it’s better than being cancelled all together.

When a policy is given percentage deductibles; that can be very confusing for the insured.  Often times they may believe that they are responsible for 2% or 5% of the actual loss.  Not so.  It’s best to make sure they understand up front, they are responsible for the percentage of the value stated on the declarations page.

Granted, total losses are happen a lot less that minor ones; however, you surely do not want a windstorm total loss to a $540,000 house that has a 2% windstorm deductible.  That $10,800 deductible is going to hit them hard when they are trying to become whole again.

The deductibles on personal injury protection can be surprising as well.  No one wants to be in the hospital and realize they have a $5000 personal injury protection deductible.  That could equal to a night stay in a hospital room or consult with a doctor.  Remind the insured, they’re going to have bigger problems if they have to use that coverage.  That deductible is the last thing they need to worry about.

Make sure you discuss the deductibles on the policy.  It’s pretty similar conversation to that of why do I need an umbrella.  How strapped is their budget and what can they afford?  How many assets do they have?  Is there another car in the household if they can’t afford to fix this one right away?

Do the math up front, in the office.  Especially if the company decides to change the deductibles on renewal.  Don’t wait for the loss to happen and leave the insured unprepared or wondering what happened.

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