If you are like most individuals, once you put your home and automobile insurance coverage in place you rarely, if ever tune in to the subtle, periodic changes your insurance company makes to the coverage parameters and the associated costs. These typically include inflationary adjustments to reflect increases in home values and mandates by state regulatory agencies. If you are more diligent, you proactively work with your property and casualty agent to adjust coverages for such things as home improvements, fine jewelry and art purchases and you might even assess deductibles from time-to-time. While adding coverage for tangible assets may be obvious, what might not be as clear is a trend by insurance companies to change deductibles from specific dollar amounts to a percentage of your home value.
Overall, both auto and homeowner’s deductibles have been climbing in recent years. While auto deductibles are now often $500 to $1,000, homeowners have moved toward $1,000 to $2,500 a claim from the $250 or $500 that once was common. Traditional dollar based deductibles are still the norm but State Farm recently rolled out percentage based deductibles in Texas that range from 1% to 5% of a home’s insured value or a minimum of $1,000.
Percentage-based deductibles long have been used for earthquake coverage in California and property coverage in hurricane-prone coastal areas. Because the Carolinas fall in this latter category, coastal residents may be well aware of this deductible strategy and the reasons behind it.
Review Your Needs
If your property and casualty company decides to roll out percentage deductibles in your area, chances are you will not be able to avoid the change and any subsequent out of pocket costs. However, barring any significant purchases of tangible assets or home improvements, you can complete a periodic assessment of insurance coverage to make sure you are being as efficient as possible with coverage and the premiums paid. Doing a review every 3 years might be a good starting point. When conducting your assessment, discuss your coverage needs with your agent in a way that puts potential incidents in “real life” terms. Ask he or she questions like:
- What if a tree limb falls on my house?
- What if a hail storm hits?
- What if a pipe breaks or water heater leaks?
- What if my teenage child is at fault in an automobile accident?
- What if my wife’s heirloom jewelry is stolen?
Inevitable and Important
Insurance is an important facet of any financial picture. Premiums are rarely embraced with enthusiasm but the relief that comes with being compensated for a loss goes a long way to assuage any anxiety that might accompany the costs associated with coverage. As damage and replacement costs increase, insurance coverages and premiums will inevitably change and likely go up. Do your part by routinely working with your insurance representative to keep them informed of your situation so the right coverage at the right price can be put in place.