Hurricane deductibles and other exclusions can trigger large out-of-pocket bills for homeowners

Thousands of homeowners in Florida suffered hurricane damage this year, and many were surprised to learn their homeowner’s insurance policy contains a separate “hurricane deductible” that shifts responsibility for thousands of dollars’ worth of repairs to the homeowner. For those fortunate enough to not have had enough damage to file a claim, now would be an excellent time to review your homeowner’s policy to see how much money you would be responsible for if your home suffered severe damage.

What is a hurricane deductible?

Hurricane deductibles are a higher deductible on homeowner’s insurance policies that are triggered when damage is done to a home by a hurricane. These deductibles are typically between 2% and 10% of the home’s insured value. Florida policies are typically 2%, but it is vital to verify the amount by reading the policy. So, while a policy may normally have a $500 deductible, that amount could change to 2% of the home’s insured value if the home is damaged by a hurricane. If a home is insured for $300,000, the homeowner could have to pay $6,000 out of pocket after a hurricane before the homeowner’s insurance kicks in.

Hurricane deductibles exist in nineteen states plus the District of Colombia, but Florida has specific laws regulating their use. The amount of the deductible is regulated, and the policyholder has to be notified with bold, 18-point font on the front of their policy with the words: “THIS POLICY CONTAINS A SEPARATE DEDUCTIBLE FOR HURRICANE LOSSES, WHICH MAY RESULT IN HIGH OUT-OF-POCKET EXPENSES TO YOU.” Many homeowners overlook this disclaimer because they are primarily concerned about the price of the policy.

The morality of hurricane deductibles is debated, but the fact is that insurance companies to avoid the exposure to the massive liability created by a major hurricane hitting Florida. In the absence of hurricane deductibles, many carriers would likely pull out of Florida. The hurricane deductible allows the insurer to share some of the burden with the customer and gives more incentive for carriers to stay in the state.

Screened Enclosure Exclusion

Screened enclosures are one of the most readily damaged structures during a hurricane. As such, many policies exclude them from coverage. Many homes in Florida have screened enclosures. The cost of a typical screened enclosure large enough to cover a pool is $6,000 to $8,000. Pair this with the 2% hurricane deductible, and a homeowner could be facing $14,000 out of pocket on a home insured for $300,000.

Financial Planning for Hurricane Damage

The dollars needed to cover a hurricane deductible and any exclusions should be included in the calculation of emergency savings. A competent financial planner can examine homeowner’s policies and make note of the hurricane deductible and any other exclusions. Additionally, a financial planner, providing they don’t also sell homeowner’s insurance, would serve as a more objective person to review an insurance policy and make recommendations than an insurance agent.

More reading:

‘Hurricane Deductibles’ Shift Home-Repair Costs to Consumers – Wall Street Journal, 9/19/17

Background on: Hurricane and Windstorm Deductibles – Insurance Information Institute

Florida Statutes Regarding Hurricane Deductibles