What Is a Hurricane Deductible?

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 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 the brunt of claims, which was when hurricane deductibles, also known as wind and hail deductibles, were put in place. Let’s check out what you need to know about hurricane deductibles.

A hurricane deductible is simply the amount of money a policyholder must pay toward a home insurance claim before their insurance company will step in to cover the damage caused by a hurricane. Hurricane deductibles are found in homeowners, condo and landlord insurance.

Hurricane deductibles work the exact same way as a regular home insurance deductible. The only caveats are its cost and what it covers. Let’s take a look at the standard costs of hurricane deductibles, as well as how they work and which states require them.

While a standard deductible typically ranges from $500 to $2,500 per claim, a hurricane deductible is based on a percentage of your home’s dwelling coverage. You get to pick your percentage, and it ranges from 1% to 10% of your dwelling coverage maximum.

So if your house is worth $250,000 and you have sufficient dwelling coverage with a 5% hurricane deductible, that means you must pay $12,500 toward a hurricane damage claim before your insurer steps in to cover the remaining damage. On the flip side, a home with $250,000 in dwelling coverage and a 2% hurricane insurance deductible will only pay $5,000 before the insurance company begins covering the remaining damage.

As with a standard deductible, the one you choose can heavily dictate your insurance premiums. The higher your deductible, the lower your premiums and the lower your deductible, the higher your premiums.

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 can only be enacted by a company 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 should choose your deductible based on the amount of risk your home has of being damaged by a hurricane. Those homeowners living close to the coast, or in other hurricane-prone areas of the United States, should consider going with a lower deductible. They’re more susceptible to sustaining hurricane damage throughout the tenure in their home, so paying less initially toward a hurricane claim could save you a lot of money.

For instance, let’s say you have a $12,500 hurricane deductible and your home sustains $25,000 worth of damage. Well you’d have to pay $12,500 out of your own pocket before your insurer steps in to cover the remaining $12,500. In another scenario, let’s say your home sustains that same damage, but your hurricane deductible is only $5,000.

In the latter scenario, you’d pay $7,500 less out of your own pocket. Sure, the lower deductible will lead to an increase in premiums, but it may be 15 to 20 years of paid premiums before you’ve paid an extra $7,500 for a lower hurricane deductible.

So would you rather pay $7,500 this hurricane season, or pay an extra $350 per year in premiums for 20 years? Although these numbers may not exactly match up, figuring out the math can have a huge impact on your premiums.

Since 2005, 19 states have required policyholders to subscribe to the hurricane deductible model. Those states are Alabama, Connecticut, Delaware, Florida, Georgia, Hawaii, Louisiana, Maine, Maryland, Massachusetts, Mississippi, New Jersey, New York, North Carolina, Pennsylvania, Rhode Island, South Carolina, Texas and Virginia, as well as Washington D.C.

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.

Although you may hear the terms wind and hail deductible thrown around, they’re the same thing as hurricane deductibles. However, wind and hail deductibles are also used for tornadoes. In states where both occur, such as Florida or the Carolinas, it’s common that your insurer refers to it as a hurricane deductible — whether it’s enacted for a tornado or a hurricane.