Check Your Hurricane Insurance Deductibles Before the Storm Hits

September 3, 2010 | by Fred (email) |

As Hurricane Earl makes his way up the Atlantic coast, we have a tangible reminder to review our homeowners insurance policies for hurricane and tropical storm deductibles and exclusions.

Hurricane insurance deductibles can have a dramatic affect on how an insurance company will compensate you in the event your house is damaged in a storm. All too many homeowners find out about these limitations for the first time in the aftermath of a storm, when stresses and tensions are already high and losses are piling up.

What Are Hurricane & Tropical Storm Deductibles?

For those who live in areas rarely or never affected by hurricanes and tropical storms, a special deductible that applies only to “named storms” is probably a new idea. Simple stated, these deductibles limit the amount of money an insurance company will pay you if your house is damaged by a storm, either directly or indirectly.

The deductibles are usually expressed as a percentage of the value of your home’s coverage. For example, you might see language that says “Named storm deductible – 5%” on your policy declarations page. While this percentage may sound small, the deductible is calculated by multiplying the percentage by the entire coverage value stated in the policy.

For example, if you have $500,000 of coverage on your home, the applicable deductible is a whopping $25,000! That means you have to pay for the first $25,000 in repairs before your insurance company will contribute a dime to helping you rebuild. If the repairs fall short of $25,000, you’ll cover the entire cost out of pocket.

What is a Named Storm and How Is the Term Used?

Some insurance companies use the term “named storm” to classify storms that are included in the deductible limitations, while other companies will limit coverage for all windstorms. A named storm is usually defined as a storm that is given a name by the National Oceanic and Atmospheric Administration (NOAA). Names of storms are pre-planned (a list of them can be found here) and dolled out to storms that meet the criteria for classification.

By relying on a storm’s named status, insurance carriers can remove some of the ambiguity around whether a particular wind storm is affected by the limitations.

What are Typical Hurricane Insurance Deductibles?

While not all policies include hurricane and tropical storm limitations, those that do can range anywhere from 1% all the way up to 100% of the property. When they are 100% excluded, they are no longer described as “deductibles” but rather as “exclusions” or “limitations.” Unfortunately, there is no benchmark for what is typical, because disaster risk varies significantly between geography, location, house type, and more.

That said, it is important to realize that not all insurance companies provide identical coverage, even in the same areas. For example, in Baltimore County, Maryland, Allstate has a 3% hurricane deductible, while Geico and other companies have no such limitation. Even individual insurance company policies will vary by state.

To find out what is typical in your area, there’s really only one way to go about it: get multiple quotes. You can use an online service to do this for you, call each company individually, or get a broker to help out. When discussing your options with the company, let them know what is important to you. For example, if you absolutely don’t want to bear a large risk for a named storm, state that as your goal up front. It will save you and them a lot of time.

Insurance Dispute Rights

Rights for insured persons vary heavily by state, so you should contact your state’s insurance regulatory body to understand what limitations might be imposed on insurers in your state in terms of exclusions and limitations. Be aware, however, that tropical storm deductibles and exclusions are generally legal and binding. Once a hurricane causes the damage on your house, the time has passed where you can shop around or negotiate the deductible.

What do you think? If you live in hurricane alley and are affected by a deductible like this, please let us know in the comments.

(image: weather.com)