How Does a Hurricane Deductible Work?

The Atlantic hurricane season began on June 1 and will not end until Nov. 30, according to the National Hurricane Center. With six months of the year prone to hurricanes, it’s helpful to understand how your insurance will respond in the event of damage to your home from a windstorm, especially if you live in a hurricane-prone area, such as coastal Florida. Standard home insurance policies have a different deductible for wind damage resulting from hurricanes than normal deductibles for other covered claims. The deductible is generally higher, so you need to be prepared for a larger financial impact in the aftermath of storm damage even with hurricane coverage.

The traditional home insurance policy has fixed deductibles for incidents that cause damage to the home. For example, a fire loss would usually result in an out-of-pocket cost to the homeowner of $500 – $1,000 before the insurance company pays for any additional damages. Hurricane deductibles are different in that they are usually a percentage of the value of the insured home. For example, in Florida, the percentage can range from 2% to 10%. This method of assigning a deductible can result in significantly higher out-of-pocket obligations than the usual fixed amount that you are accustomed to on your home insurance policy.

This is because in many areas that are susceptible to hurricanes, insurance companies have created special deductibles to shift a larger portion of the home repair costs to homeowners. Without the larger hurricane deductible, insurance companies would either not be able to offer any insurance for hurricanes, or the premium would be too expensive for most homeowners. In fact, according to the Insurance Information Institute, Hurricane Katrina had more than $41 billion in insured losses, which prompted the shift to higher hurricane deductibles on home insurance policies.

You do have flexibility in choosing your deductible, however, and choosing a higher percentage will result in a lower insurance premium. But keep in mind that this means you’ll have to live with the financial impact a large deductible will have if and when you actually suffer hurricane damage to your home. One common rule of thumb is to not buy more insurance than you need, especially if you can afford to absorb certain losses within your financial situation. At the same time, you should also not buy less insurance than you need if you cannot afford to suffer an uninsured loss or a high deductible.

Some states have beneficial features for hurricane insurance holders. For example, in Florida, only one deductible applies in the course of a single calendar year. Therefore, if multiple hurricanes damage your home, you can add up all the damage and be assessed only one deductible. This helps if each incident was under the deductible but, combined, exceed the deductible, making you eligible for some recovery from your home insurance policy. In addition to Florida, there are 17 states plus the District of Columbia that use hurricane deductibles on home insurance policies. The Insurance Information Institute’s Hurricane and Windstorm Deductible topic provides an overview of each state’s program.

If you have not thoroughly reviewed your home insurance policy and its hurricane deductible component prior to the start of this year’s hurricane season, now is a good time to pull out the policy. It’s best to be prepared for a natural disaster that can have serious financial implications for you and your family, even when you have insurance.

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