Managing Risk: Maximum Deductible Caps for DSCR Loans

Rule

To ensure the property remains adequately protected, the maximum allowed deductible for standard "All Other Perils" (AOP) insurance is 5% of the coverage amount. For specialized Wind, Hail, or Hurricane coverage, the maximum deductible is 10% of the coverage amount.

Lendency Insight

High-deductible policies are a popular way for investors to lower their monthly insurance premiums and "boost" their DSCR ratio. However, a deductible is essentially a "hidden liability." If a storm causes $20,000 in damage and you have a $25,000 deductible, you are paying for the entire repair out of pocket. Our caps (5% and 10%) ensure that in the event of a claim, the cost to the investor is manageable and won't bankrupt the project's cash reserves. Before you finalize a policy with your agent, ensure they are working within these percentage caps to avoid having to revise your policy at the eleventh hour.

Common Scenarios & FAQs

• My agent says 5% is standard. Is that okay? Yes! 5% is the ceiling. If you choose a flat $1,000 or $2,500 deductible, that is even better and well within the rules.

• What if the state requires a higher deductible? In certain coastal areas (like parts of Florida or Texas), we may allow exceptions if the state-mandated "FAIR Plan" or wind-pool requires a specific deductible.

• How does this affect my DSCR? A higher deductible lowers your insurance expense, which helps your DSCR. But you must balance that help with our 5%/10% safety caps.

Key Definitions

• Deductible: The amount of money the policyholder must pay out-of-pocket before the insurance company pays a claim.

• AOP (All Other Perils): The standard portion of a property policy that covers fire, theft, and basic damage.