Explaining higher deductibles on home insurance

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  • As percentage-based home insurance deductibles become more common in the industry, it is important to have a plan for explaining the new system to customers.

    In the past, home insurance deductibles have been measured in dollar amounts. A $500 deductible might have been considered standard only a few years ago. However, in the wake of Superstorm Sandy, percentage deductibles are becoming considerably more common in the industry, according to Reuters. On a home valued at $400,000, a deductible of 1 percent of the insured value comes to $4,000. This presents a unique challenge to agents, who may face a backlash from customers who are unhappy with the higher figures.

    State Farm agent Jen Dunn told the news source that many clients offer resistance at first. Once she explains that a higher deductible comes with a lower monthly premium, however, many are won over. Below are a few key points for insurance agents to go over with their clients.

    • Lower premiums – As every insurance agent knows, higher deductibles mean lower premiums. This can be a good thing for homeowners who don’t frequently make claims, as the savings over time may more than make up for any higher payments on coverage.
    • How it works – It is essential to explain to clients how the new deductible policy works. On the example home above with a $4,000 deductible, the homeowner would have to cover the first $4,000 of any claimed damages. If the damages come to $10,000, the homeowner pays $4,000 and the insurance company pays $6,000.
    • Fewer claims – While homeowners may not be thrilled with the prospect of having to pay for more repairs out-of-pocket because of the new deductible policy, it is worth explaining that this may be desirable anyway. Monthly rates increase when a homeowner makes a claim, meaning that making fewer claims results in lower premiums.
    • Know the dollar amount – In the interest of maintaining a solid relationship with their clients, insurance agents should stress that they should know the dollar amount of their deductible. This includes the fact that the dollar amount will change as the home increases in value.

    Many customers that are switched to a percentage deductible may feel frustrated with the new policy. Those insurance agents who spend the time to keep their clients informed about such changes stand the best chance of retaining clients and building solid, long-term relationships.