Deciding on a Deductible

Today, most property policies contain a deductible.  A deductible simply means that a portion of every insured loss will be deducted from the amount the insurance company would otherwise pay.  Deductibles encourage you to prevent losses and reduce the cost of your insurance.

What deductible is right for you?  This is an individual decision that only you can make.  However, there are three important factors to consider when making that decision:

·         The Cost Savings

When you accept a higher deductible, your premium goes down.  Ask your agent to give you figures for cost savings with different deductible levels.

·         Cash Flow

Can you write out a check for $500 at the drop of a hat?  If that would be difficult right now, you do not want a $500 deductible.  Periodically review your deductibles to determine if they should be adjusted due to a change in your cash flow position.

·         Insurability

If you have a number of claims, even if they are small, your insurance premium may increase or you may lose your coverage.  Insurance is designed to cover the catastrophic loss and should never be used to pay the smaller losses that you could pay out of pocket.  Discuss this issue with your insurance agent when deciding on a deductible.

Choosing an appropriate deductible is an individual decision.  Although your agent will give you information and discuss the issue, only you can decide which deductible is right for your unique circumstances.

Condominium: Unit Owner's Policy

When you buy a unit-owner’s policy to cover your condominium unit, you are obtaining a variety of coverages.  The policy includes coverage for your personal property, additional living expense, and personal liability.  The unit-owner’s policy also offers the opportunity to insure any building items that are within the unit.  You must determine the amount of building coverage you need to cover these items.

The condominium association carries an insurance policy covering part of the building.  Some associations cover the unit up to the interior bare walls, others cover everything that is permanently attached to the building, even if it is inside the unit.  The challenge is to determine where the association policy stops so you can insure the building items it does not cover.  There are two steps to meeting this challenge.

1.    Determine Responsibility

The bylaws of the condominium association will tell you which building items are covered under the association insurance.  By reading these documents or by asking a director of the association, you will be able to find out which building items are your responsibility to insure.

2.    List and Value items

Make a list of the building items within the unit that are your responsibility to insure.  Place a value on each of these items and total the list.  Be certain to include such things as installation, shipping and sales tax.

You may find it a challenge to determine an accurate amount of coverage for these buildings items.  In that case, you can substitute an estimate for step number two.  Your insurance agent will be able to give you the cost per $1000 of coverage, but should not be expected to determine the amount of coverage you need

Comparative Negliglence

In many states, the damages awarded in an auto accident are based on the comparative fault of the drivers involved.  When a driver is legally parked or rear-ended in traffic, the other driver is usually found to be 100% at fault and responsible for all the damages.  In other accidents, both drivers are partially at fault and a driver’s ability to recover damages depends on the degree of fault that is determined.

Assume Fred is driving straight ahead on a main thoroughfare when Sally runs a stop sign and broadsides Fred’s car.  Fred may be assigned 10% responsibility for the accident because he could have mitigated the damages if he had been more alert and been driving defensively.  In this case, Sally and the company that insures her will pay only 90% of Fred’s damages.  Fred will be responsible for the balance.

Who determines the proper percentage of fault?  In the above case, the company that insures Sally’s car will off to pay Fred 90% of his damages.  If Fred does not accept this offer, he has the option of going to court to ask a judge to determine the comparative negligence in the case.

Fred may have on other option.  If he carries collision coverage on his vehicle, he can choose to collect under his own insurance policy for the damages.  In this case he will have to pay the deductible under his policy.  After his insurance company has paid the damages, it will look to Sally’s insurance company for reimbursement.  It will also ask for Fred’s deductible back.  If his insurance company collects 90% from Sally’s company, Fred will eventually get 90% of his deductible back.  That reimbursement process takes months, sometimes years