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Don't be in the dark about hurricane deductibles

During hurricane season, homeowners in Florida, Texas, Alabama, New York, New Jersey, Hawaii and a dozen other coastal states need to check their policies to see whether they're subject to hurricane deductibles. These are separate deductibles for damage caused by hurricanes or windstorms during hurricane season, which lasts from June 1 to Nov. 1.

Unlike a typical homeowner's insurance policy deductible of $500 or $1,000, hurricane deductibles usually are listed as 1 percent to 5 percent of a property's insured value. The owner of a home with dwelling coverage of $200,000 and a 5 percent hurricane deductible would pay the first $10,000 of damages from a storm.

hurricane deductibles“A hurricane deductible can be a useful thing. It's a higher deductible than your regular one, but it only kicks in under a catastrophe, allowing the lower deductible to work for other situations,” says Jerry Hagins, a spokesman for the Texas Department of Insurance.

Hurricane deductibles were developed in response to 1992's Hurricane Andrew, which racked up a $15.5 billion bill for insured losses, the most ever from one storm, according to the Insurance Information Institute. As a result, insurers had to lessen their future risks by having policyholders assume more responsibility in the form of higher deductibles, the institute says.

When hurricane deductibles are triggered

Hurricane deductibles typically are applied to damage caused by so-called name storms that have hit land, as determined by the National Weather Service. In Florida, for example, the deductible would be in effect for any damage incurred during the 72 hours after a hurricane warning is issued.

Each insurer and state applies the deductibles differently, however, so it's crucial for homeowners to be familiar with their policies. Also, some policies may not use the term “hurricane deductible,” with insurers in Texas sometimes calling them "tropical cyclone" or "name storm" deductibles.

How hurricane deductibles work

Hurricane deductibles are part of a multilevel approach to coverage that could include a lower, standard deductible for non-hurricane related losses and possibly a third deductible for hail or wind damage, according to Hagins.

However, it's important to note that deductibles apply only to damage to a dwelling, with any damaged or lost belongings covered by standard deductibles, says Michael Barry, a spokesman for the Insurance Information Institute. Also, if your home becomes inhabitable because of hurricane damage, most policies will cover the cost of temporarily living elsewhere, Barry says.

Not just for coastal locations

In some states, it may not just be coastal areas that are subject to hurricane deductibles. After Hurricane Charley caused considerable damage to homes away from the Florida coast in 2004, insurers in the Sunshine State revised their rules to apply the deductibles to properties in the middle of the state, according to Charles Tutwiler, president of Tutwiler & Associates, a public insurance adjuster in Tampa, Fla.

“Now if you have wind coverage, you will probably have a hurricane deductible,” Tutwiler says.

For example, the deductible likely would apply if a hurricane hits land at Miami (South Florida) and causes high winds in Pensacola (the Florida Panhandle) without actually hitting that part of the state, Tutwiler says.

“If there's a spinoff tornado, and you have not hurricane where you live, the hurricane deductible will apply,” Tutwiler says.

Bold warning

Hurricane deductibles have been met with controversy. In Florida, state law mandates hurricane deductibles must be identified with the following disclaimer in 18-point bold type: “This policy contains a separate deductible for hurricane losses, which may result in high-out-of-pocket expenses to you.”

The Florida Supreme Court has said that the public can't sue insurers over variances in the type size and words used if the disclaimer substantially complies with the law's disclosure requirement. The court opinion was requested by a federal court. The federal court is considering an appeal of a $7.2 million judgment against QBE Insurance Corp. in a case brought by the Chalfonte Condominium Association and a subsequent reduction in the judgment to $1.6 million.

Condos can be different

Hurricane deductibles may take on a different meaning when applied to condo associations. In Florida, for example, the deductible could be applied to the value of all buildings in a complex, depending on the policy's language, Tutwiler says.

Therefore, if only one building was damaged in a storm, it's possible that no payment would be made because the value of the damaged building wouldn't exceed the hurricane deductible percentage for the entire complex.

The ability to make a claim also could be affect if certain areas of a complex, including the pool, parking lot and green space, are not covered by the hurricane deductible, according to Tutwiler.

Good records are essential

Hurricane deductibles are calculated on an annual basis, making good record-keeping essential, according to the Office of the Florida Insurance Consumer Advocate.You could tally $2,000 to $3,000 in damages during a storm in June, but then hit your deductible if a bigger storm strikes later in the season, so you should always report damage to your insurer, no matter how small.

Take “before” images of your property that are date-stamped, and store them online or in a safe-deposit box. After every storm, document any damage to your home.

Hurricane deductibles can protect your home from severe damage, but remember to read the fine print carefully.

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