Are you prepared for the high-deductible homeowners' insurance?

In the aftermath of the Superstorm Sandy, insurance carriers got busy recalculating the risks in case another Sandy strikes. However, after two years, State Farm agent Jen Dunn is trying to make her customers in New York understand the new insurance math. From now onwards, instead of the dollar value, deductibles for home insurance will be calculated based on percentages. For millions of homeowners across the nation, the typical $500 deductible might convert into a 1% of the insured value. Hence, for a $500,000 house, that mean a jaw-dropping $5000. As per Dunn, many of her clients are not happy with this. But then she explains how the higher amount is usually neutralized by a lower annual premium. On the contrary, Jason Corbett, a resident of Georgia, is happy with the 1% deductible and has started using it. The reason being the value of Corbett’s home, which is a bit less than $200,000. It was certainly a better deal with a $1,000 deductible. State Farm, US’s largest property and casualty insurance company by market share has recently stated in a news brief that a ‘significant’ number of its policyholders now have percentage deductibles. Other national carriers namely, Nationwide, USAA and Allstate Corp, also do offer the the percentage option in specific states, nevertheless, the prevalence is yet to be identified nationwide. With the new percentage deductible option, things are going to be a little different than the flat-deductible that used to be in existence. Here are five things you need to know. 1) Stop being afraid of these high deductibles: Perhaps you are used to the $500 deductible, but a higher deductible could actually prove to be beneficial for you. According to industry experts, this is a very smart move for policyholder since the higher deductible would refrain you from pushing for small claims and keep your history clean. 2) The 1% stuff is not a loss: The new terminology makes people think of health insurance, but homeowner claims do not work that way, says Jim Gavin, director of insurance information services for the Independent Insurance Agents of Texas trade group. In fact, the out-of-pocket deductible that you need to pay for the company to move on with the procedures is just the percentage of the insured value of your home and not the market or appraised value. 3) Your out-of-pocket expenses will rise: The flat $500 deductible that used to be in existence, would not go up. However, a percentage deductible could go up or down periodically over time along with the insured value of your home. Many might not know it, but since you are reading this, make sure you check this occasionally. 4) You’ll have other deductibles on top of the basic: You might not, but many homeowners have add-on features on their home insurance policies like a 6% deductible for hurricane, which is usual in coastal areas, or 3% for wind and hail damage. In states like California, you are even required to buy separate coverage for earthquakes and floods. All these add-ons apply on top of your basic coverage for fire and theft. 5) Shop around: In some areas of Texas, some companies are still offering a traditional deductible besides the newly introduced percentage deductible. You just need to shop around and see which suits you the most.