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1% Deductible Rule for Home Insurance
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I recently received an interesting letter from my lender, BB&T, about how the deductible on my homeowner’s insurance was too high. Apparently, there is a general rule that states the deductible cannot be greater than the 1% of the value of the home (or the amount of the loan) because there is a fear that the homeowner won’t be able to afford a higher deductible. This is especially mind boggling when you consider they lent me over $200,000 and they don’t expect I’d be able to cover a deductible greater than $2,000?
The biggest rub is that, outside the state of Texas, my (and I suspect many others) insurer only had deductibles of $1,000 and $2,500 (no intermediates) so I was forced to drop down to $1k. At least in Texas, you can get a deductible that is 1% of the loan (according to the representative I spoke with on the phone). The actual difference in my insurance premium was a mere $50 a year so it wasn’t a significant pain – but a symbolic one.
I toyed briefly with the thought of raising my coverage amount so I could keep a higher deductible (subtraction by addition, so to speak) but the CSR easily convinced me that was a bad idea. If I raised my coverage, I was paying for insurance I could never claim. So even if the premium increase (of a higher coverage amount) were smaller than the increase (because of a lower deductible), the extra money I paid would never “help me.” At least with a lower deductible, it could potentially save me $1,500 (difference in deductibles) in the event of a $2,500+ problem.
It still strikes me as absurd that they would extend a loan of $200,000+ to someone they are fearful can’t cover a $2,500 deductible – but I suppose their actuaries crunch the numbers and told them to play their cards that way. I’m going to go find an old TV and steal it from myself.
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I recently tried to upgrade my insurance coverage with Allstate when I was told about this one. I tried to go from A+ to A level house insurance, but was told a whole new policy would have to be drawn up and my deductible would be raised to that 1%, which would mean $1027 for me. As a 100% disabled veteran, I wouldn’t even have enough money to use my homeowners insurance if it were $1027. Since right now I’m grandfathered in at a $500 deductible, I’m stuck with Allstate now, even though I’d like to switch due to that and other little shenanigans over time they’ve pulled.