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Oh what a tangled insurance web we weave. If you can’t stand the thought of paying your deductible when you make an insurance claim, you can now layer on another insurance policy to cover yourself.

Raising your deductible is one way to lower your home and car insurance rates. But what happens if you get in a wreck or a water pipe bursts and you can’t afford to pay that deductible?

Such a scenario is behind the idea for a new kind of insurance policy that covers the deductible on auto, boat and home insurance claims.

deductible insuranceAmerican Marine Insurance Services and Markel American Insurance Co. launched Zero Deductible insurance in September. American Marine administers the program, and Markel underwrites the insurance.

How does zero deductible insurance work?

You pay an annual premium for coverage of a boat, home or auto insurance deductible. The cost depends on the amount and type of deductible and state in which you reside. Your claims history or other risk factors are not considered. In California, for example, the annual premium for a Zero Deductible policy on a $2,500 home insurance deductible is $162.

In return, the policy pays the deductible amount for any claim your property insurance company pays. Say, for instance, that burst water pipe caused $3,500 in damage to your home. With a $2,500 home insurance deductible, the home insurer would pay $1,000, and you’d have to cough up $2,500 for the rest of the $3,500 repair tab.

But if you had Zero Deductible insurance, you would file two claims — one with the home insurance company and another claim on the Zero Deductible policy. Once the home insurance company approves the claim, the Zero Deductible policy reimburses you for the $2,500 deductible.

The product is now available to residents in Arizona, California, Idaho, Nevada, Oregon, Utah and Washington, but the insurers plan to expand it to other states, Andreas Diwing, the program’s managing director, says. He believes it is the first product of its kind.

Key Takeaways

  • Zero Deductible insurance covers the deductible on auto, boat and home insurance claims.
  • Increasing your deductible amount on collision and comprehensive car insurance from $250 to $1,000 can cut the premium by 40 percent.
  • Zero deductible insurance could be a good purchase if the extra financial protection on large claims allows the consumer to raise the deductible and save on premiums.
  • Filing a lot of small insurance claims is not a good idea. It is better to wait and use insurance for bigger losses. Paying smaller losses yourself is called paying out of pocket.

Tough economy sparks idea for more insurance

“In hard times people opt to increase the deductible to save on the premium,” he says. “But a lot of people now can’t afford the high deductible.”

He cites a AAA survey released in August that found one in four American drivers could not pay for a $2,000 car repair bill if faced with one today, and one in eight would be unable to pay for a $1,000 repair. The Zero Deductible policy allows customers to raise their property insurance deductibles to save on premiums but still have a backup for paying the deductible if they have to file a big claim. The program offers a 10 percent discount for buying multiple policies and another 10 percent discount for going one year without filing a Zero Deductible claim. There is no penalty, though, for filing multiple claims on the policy.

Amy Bach, executive director of United Policyholders, a consumer advocacy group headquartered in San Francisco, says the Zero Deductible policy sounds intriguing.

“If you’re watching your budget, it is better to raise the deductible,” she says. “It’s not financially wise to file a lot of small claims. It’s better to save insurance for bigger losses and to pay smaller losses out of pocket.”

Zero Deductible insurance could be a good buy if the extra financial protection on big claims allows a savvy consumer to raise the deductible and save on premiums, says Bach.

Higher deductible means more affordable car insurance

Raising a $250 deductible on collision and comprehensive car insurance to $1,000 can cut the premium by 40 percent or more, according to the Insurance Information Institute (III).

Keep in mind, though, Zero Deductible pays out only for claims above the deductible. If the burst water pipe caused $2,400 in damage, and your deductible was $2,500, the Zero Deductible policy would pay zero. It also does not pay the deductible for denied claims.

Bach says to read the fine print of any policy before purchasing, and make sure you keep track of the policy if you buy it. The more policies you have, the harder it is to keep them straight, which is why consumer advocates dislike the fragmenting of insurance products–multiple policies to protect one thing.

Diwing says it’s too early to forecast sales of the product, but the program has generated a lot of requests for information. For now American Marine Insurance Services is selling the product directly through an 800 number and through