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After Hurricane Andrew in 1992, percentage deductibles became more popular in policies as a way to reduce the exposure to insurance companies. In a typical claim, you will know what your deductible is but with percentage deductibles you may not know until after your loss is calculated. A common misconception is that the percentage applies to the loss sustained when in fact the percentage deductible is a factor of the total insured value (TIV). The challenge with this method is that it’s variable depending on the size of your loss and your policy language.
Here are a few examples of policy wording related to percentage deductibles:
Calculated Percentage Deductible as a Percentage of Total Insured Value (TIV)Property, Plant & Equipment $250 MillionAnnual BI Value $550 MillionTotal TIV $800 Million X 3% DeductibleEquals $24 Million Deductible