Why Hurricane Deductibles are so Important

People who live in coastal states need to consider their hurricane deductibles, which may be found on a homeowners insurance policy. This type of deductible determines how much policyholders must pay upfront before the insurer picks up the rest of the tab. Hurricane deductibles are listed in clear wording on a homeowners policy.

Hurricane season starts in June each year and lasts until November. Although it is best for homeowners to check their deductibles before the start of this season, it is good to also check it anytime there are questions. Every coastal homeowner should know what their policy includes. Although hurricane coverage used to be a separate policy, it is now included in most homeowners contracts in 18 coastal states.

Typical fire, disaster and theft deductibles are listed as flat dollar amounts. However, a hurricane deductible is usually listed as a percentage. The amount may vary between one percent and five percent of the insured value of a home. This means a policy with a five percent deductible on a home insured for $600,000 would require the policyholder to pay $30,000 upfront before insurance benefits kick in. It is also important for homeowners to understand when their policy benefits begin.

Deductibles are triggered by specific criteria. First, the National Weather Service must issue a classification of a Category One storm making landfall. Insurers may also have other criteria. Many companies have criteria for severity classifications. Deductibles vary by insurer and state. Since policies differ, homeowners should check their own policies. It is never safe to assume that a policy is identical or even similar to a friend’s. If there are questions about the deductible, what it covers and how to find the wording, it is best to discuss these concerns with an agent.

Insured homeowners in coastal areas may have the option to pay higher premiums in exchange for a set deductible. This means a dollar amount will be assigned instead of a percentage. This often depends on how close the dwelling is to the ocean. In high-risk areas, many insurers will not sell a homeowners policy without the inclusion of hurricane coverage. To find out if there is a flat amount available in exchange for a higher premium, discuss the option with an agent. It is important for homeowners to understand what hurricane coverage is and where it came from.

In 1992, the famous Hurricane Andrew brought more than $15 billion in insurance losses. As the most expensive storm in history for insurance companies, it sparked the creation of catastrophe-risk computer modeling. This showed that homeowners were vulnerable to extreme risks in coastal areas. Insurers also had trouble getting insurance for their businesses, which is called reinsurance. By requiring policyholders to bear a fair share of the costs, insurance companies were able to get insured again and offer coverage to consumers.