Do you understand how hurricane damage affects your homeowners insurance? You should, if you have property in a hurricane high-risk region, such as the Gulf of Mexico or an Atlantic coastal community. During the period from 1993 to 2012, hurricanes caused more than $158.2 billion in insured losses in the United States, according to the Insurance Information Institute (III). Understanding this special insurance, especially the details of the hurricane deductible, will help avoid financial surprises should your home be damaged by a hurricane.

1. When does the hurricane insurance deductible apply?

A hurricane deductible only applies to damage from hurricanes categorized by the National Weather Service or U.S. National Hurricane Center. Separately, a windstorm deductible applies to any other wind damage. It's important to note that each insurance company determines its own "trigger" – the event that invokes the hurricane or windstorm deductible. Homeowners should verify specific triggers with their insurance company.

2. Why were these deductibles introduced?

When Hurricane Andrew hit southern Florida in 1992, it caused an estimated $26 billion in damage. Hurricane Katrina caused more than $41 billion in insurance claims after it struck in 2005. The result in both cases: huge financial hits to the insurance industry. After these disasters, reinsurers – the companies that help shoulder the cost of homeowners insurance for the primary insurance companies – said that insurers must find a way to lower their cost of paying claims. The companies developed a new percentage method of calculating how much a homeowner must pay for storm-related insured damage before insurance reimbursement kicks in, the Insurance Information Institute explains. This increased the amount the homeowner pays, thus reducing the insurer and reinsurer's financial responsibility.

3. How are hurricane and windstorm insurance deductibles different from a regular deductible?

A standard homeowners policy provides financial protection against disaster in the form of insurance on both the home itself and the contents within it, says the III. The insurance deductible is the amount of money you must pay toward a loss before your insurance company starts to pay, according to the terms laid out by your policy. However, homeowners insurance policies for properties in areas most likely to be hit by a hurricane may include hurricane and windstorm insurance deductibles as an additional requirement beyond the regular deductible.

4. When would I pay one of these deductibles?

Whether or not you'll pay a hurricane or windstorm insurance deductible depends on your state and insurance company's definition of a trigger event. The deductible will only apply if certain circumstances described in your insurance contract occur. The details of these policies are often based on state law. Hurricane insurance triggers vary among states as well as among insurers. For this reason, it's important to carefully review the hurricane insurance details in your homeowners insurance policy as part of your natural-disaster preparation plan. Also, make sure you have copies of the relevant documents in a financial go-bag ready to grab if you have to leave your home in a hurry. See Eight Financial Safeguards If Disaster Strikes.

5. How do I calculate my hurricane insurance deductible?

The amount of the hurricane insurance deductible is calculated as a percentage of a home’s insured value, instead of using the traditional “dollar deductible.” For example, a standard homeowners policy with a $500 deductible requires the homeowner to pay the first $500 of insured damage on a claim, regardless of the home’s insured value. However, a hurricane insurance deductible of 5% of a home's worth at a value of $300,000 means the homeowner must pay the first $15,000 of insured damages, according to the III. The typical hurricane deductible is between 1 and 5%, though some coastal areas with more frequent wind and hurricane events could have a higher deductible.

6. Which states have hurricane or windstorm insurance deductibles?

As of July, 2014, the III lists the following states as having some form of hurricane or windstorm deductible:

Alabama, Connecticut, Delaware, Florida, Georgia, Hawaii, Louisiana, Maine, Maryland, Massachusetts, Mississippi, New Jersey, New York, North Carolina, Pennsylvania, Rhode Island, South Carolina, Texas, Virginia and Washington DC.

For more detailed information on each state's storm deductibles, visit the III's hurricane and windstorm deductibles page here.

The Bottom Line

Insurance companies instituted special hurricane and windstorm insurance deductibles after a high level of storms coupled with increasing coastal populations resulted in massive numbers of storm-related property insurance claims and heavy financial losses for insurance companies. In most cases, the percentage-based deductibles increase the amount the homeowner pays, lessening the financial burden on the insurance companies. Homeowners in high-risk hurricane areas should review their insurance policy so they know how much they may have to pay toward their hurricane or wind-storm insurance deductible in the event of a storm.

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