Understanding Hurricane Deductibles

The next hurricane season is right around the corner. Will you be ready?

Don’t wait until the first storm forms. Review your insurance coverage as soon as possible. In addition to making sure you have enough coverage, check your deductibles.

How Hurricane Insurance Works

Exactly how hurricane insurance works can depend, in part, on where you live. In some places, hurricane insurance is provided as part of a standard homeowners insurance policy. In Hawaii, however, homeowners insurance policies typically exclude hurricane coverage. This means that hurricane coverage must be purchased separately.

Hurricane insurance covers wind damage, but it does not cover flood damage. Flood insurance is provided separately, both in Hawaii and in other states. As a result, Hawaii residents may need three types of coverage: homeowners, hurricane and flood. In fact, lenders may require these types of insurance coverage as a condition of your loan.

Why Hurricane Deductibles Matter

The deductible is the amount that you have to pay out of pocket when you file a claim.

Hurricane insurance deductibles can work a little differently than other deductibles. Even in states where hurricane insurance is included in homeowners coverage, there is typically a separate deductible for hurricane damage. Also, whereas the regular deductible on a homeowners insurance policy may be expressed as a dollar amount, the hurricane deductible is often expressed as a percentage.

So, if your home has $500,000 of hurricane insurance coverage with a 5% deductible, you could potentially have to pay $25,000 out of pocket if your home were damaged by a hurricane. Here are a few scenarios:

1. Your home incurs minor damages, valued at $15,000. In this case, you would be expected to pay for the repairs out-of-pocket.
2. Your home incurs $30,000 of damage. You receive a $5,000 insurance payout and you must pay for the other $25,000 out-of-pocket.
3. Your home is totally destroyed. You received a $475,000 payout.

Two Costly Mistakes

Many people focus on the premium amount but not the deductible amount. Or, they mistakenly believe that a 5% deductible means they’re responsible for 5% of the claim amount – rather than 5% of the total insured value. (Big difference!)

These are two huge mistakes.

Imagine if your home is severely damaged. Perhaps you can’t live in it until repairs are made. You file a claim, but the deductible is more than you can afford to pay out-of-pocket. What do you do now?

Understand and Anticipate Hurricane Coverage Gaps

Hurricane coverage provides important protection for people who live in high-risk areas like Hawaii. However, it is not designed to cover all the costs associated with hurricanes. So, it’s important to understand and anticipate the coverage gaps, such as:

1. High deductibles
2. The costs you incur to protect your home from damage
3. The costs to cleanup and repair your property that do not exceed your deductible

Even if you have hurricane claim money coming, it can take time – especially in a disaster when many homeowners are affected. You need to file the claim, the claim needs to be processed, and a payout needs to be determined. This process can take weeks or even months.

Contact your independent agent to learn more about coverage options. If you don’t have an independent agent, click here.