If you have a home in a region that has a high hurricane risk, you'd better check your homeowner's insurance policy for the details of its deductible for hurricane-related damage. This relatively new addition to insurance policies is not a flat dollar amount but a percentage of your home's value, and it can add significantly to the financial burden you bear if your home is damaged in a hurricane.
When the Hurricane Deductible Applies
A hurricane deductible applies only to damage from storms categorized as hurricanes by the National Weather Service or U.S. National Hurricane Center. A so-called windstorm deductible applies to any other wind damage. Each insurance company determines its own "trigger" – the event that invokes the hurricane or windstorm deductible.
When Hurricane Andrew hit southern Florida in 1992, it caused an estimated $25 billion in damage. Then Hurricane Katrina hit in 2005, causing more than $41 billion in insurance claims. After these disasters, reinsurers, the companies that back up the cost of homeowners insurance for the primary insurance companies, demanded that insurers find a way to lower their claims costs.
The companies developed a new method of calculating how much a homeowner must pay for storm-related insured damage before insurance reimbursement kicks in. This increased the amount the homeowner must pay and decreased the insurer and reinsurer's financial responsibility.
How the Deductible Works
A standard homeowner policy provides financial protection against disaster in the form of insurance on the home and its contents. The insurance deductible is the amount of money you must pay toward a loss before your insurance company starts to pay. This is laid out in the policy.
Homeowner policies for properties in areas most likely to be hit by a hurricane may include hurricane and windstorm insurance deductibles as additional requirements beyond the regular deductible.
If your home is at risk, it is important that you have enough coverage to protect you in the event of a serious storm. Your standard homeowners policy may not cover all hurricane damage, but hurricane policies do supply this protection and often match the coverage of your homeowners insurance.
When the Deductible Applies
Whether or not you'll pay a hurricane or windstorm deductible depends on your insurance company's definition of a trigger event. The deductible will only apply in certain circumstances, which are described in your insurance contract.
Hurricane insurance triggers vary among states as well as among insurers. That's why it's important to review the hurricane insurance details in your homeowner insurance policy. Make sure you have copies of the relevant documents in the emergency bag you keep ready in case you have to leave your home in a hurry. See Eight Financial Safeguards If Disaster Strikes.
Calculating Your Deductible
The amount of the hurricane insurance deductible is calculated as a percentage of a home’s insured value, not as a dollar amount.
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 requires the homeowner to pay the first $15,000 of insured damages.
The typical hurricane deductible is between 1% and 5% of the home's insured value, although policies in some vulnerable coastal areas could have an even higher deductible.
These States Have Hurricane Deductibles
The following 19 states, plus the District of Columbia, have some form of hurricane or windstorm deductible in place as of mid 2020: 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 the District of Columbia.
The Insurance Information Institute updates laws in each state regarding hurricane and windstorm deductibles here.
The Bottom Line
Insurance companies started applying hurricane and windstorm insurance deductibles after experiencing massive costs related to storms in the early 2000s. In most cases, these percentage-based deductibles increase the amount the homeowner pays. Homeowners in high-risk hurricane areas should review their insurance policies so they know how much they may have to pay if a hurricane hits.