I live in an area that's at a high risk for a catastrophic earthquake and I've been considering switching my home insurance to a company that also offers earthquake insurance.
All the companies I've contacted so far have a separate deductible for earthquake claims. Unlike a typical fixed deductible (e.g., $1000), deductibles for damage caused by earthquakes are always a percentage -- anywhere from 10% to 20%. So if my deductible is 10% and I have $250,000 in dwelling coverage, then I would have to pay the first $25,000 on any damage that occurs.
This leads me to my question: does the deductible as a percentage make it advantageous to purposely select lower coverage totals? For example, on my current home insurance I have $230,000 in personal property coverage (separate from dwelling coverage). However, I do not have $230,000 of personal property inside my house -- it'd probably be closer to $80,000. Given that I have $230,000 PP coverage, if an earthquake hit and the house collapsed, then I would have to pay for the first $23,000 in damage. That's a huge deductible when in reality I only have $80,000 worth of personal property.
Wouldn't it make sense to lower my personal property coverage to $80,000 (or even slightly below it)? Such a change wouldn't much affect my annual premium, but it would significantly lower the threshold at which my policy will pay out.
This seems a little counter-intuitive. Is there some sort of flaw in my logic?