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Everything You Need to Know About Hurricane Deductibles

By Jarrod Heil

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After Hurricane Katrina devastated New Orleans and the Gulf Coast in 2005, insurance companies and their reinsurers scrambled to pay more than $41 billion in home insurance claims.

The fear of paying substantial amounts of money to policyholders was no longer a statistical chance companies were willing to take. It was a reality that cost those companies more than $8 billion in profit.

Hurricane Katrina caused companies that provide reinsurance, which is a type of policy purchased by insurance companies to mitigate risk to the bottom line and reduce the overall payouts for covered losses, to switch their mantra.

They were now forcing insurance companies to take more of the brunt of the claims, which was when hurricane deductibles, also known as hurricane insurance deductibles, were put in place.

Since 2005, 19 states (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 D.C. have required policyholders to subscribe to the hurricane deductible model.

Florida has led the way in terms of regulations, passing a law that states the minimum and maximum amount companies can charge for hurricane deductibles. In the remaining areas where hurricane deductibles are required, it is currently up to each individual company to set the minimum and maximum amounts policyholders must pay for hurricane deductibles.

Let’s check out what you need to know about hurricane deductibles.

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How Does a Hurricane Deductible Work?

A hurricane deductible works similarly to a standard home insurance deductible. It’s the same in that, after sustaining damage from a hurricane, you must first pay your deductible amount before your insurance company will begin paying for damages.

However, hurricane deductibles are always paid as a percentage of your overall dwelling coverage instead of an actual dollar amount that’s associated with standard home insurance deductibles.

While a standard deductible typically ranges from $500 to $2,500, a hurricane insurance deductible is usually 1 percent to 10 percent of your overall dwelling coverage, depending on the amount of risk your home has of being damaged by a hurricane.

For those homeowners living close to the coast or in hurricane-prone areas of the United States, they can expect to pay up to 10 percent for a hurricane deductible.

For the percentage based method, that means a policy with $200,000 in dwelling coverage and a 3 percent hurricane insurance deductible means you must pay $6,000 out of your own pocket before your insurance company begins covering any damage.

Hurricane deductibles can only be enacted if a Category 1 or higher hurricane causes damage to a home. If the wind conditions hover within the tropical storm range (less than 74 miles per hour), a standard home insurance deductible will likely be used in lieu. Although you’ll want to check your state’s laws because they differ throughout the U.S.

You can more state-specific hurricane deductibles at the Insurance Information Institute’s website.

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