Here on the Louisiana Gulf Coast, we know just how devastating and expensive hurricanes — even of the lowest categories — can be. Hurricane Katrina, in 2005, caused an estimated $81 billion in property damage (with a total economic loss of $150 billion), and insurers paid an estimated $41 billion in property damage costs. However, homeowners also have to bear their fair share of costs. One of these is the hurricane deductible.
While hurricane deductibles work a lot like any homeowners insurance deductible, they still are different in how much they obligate the policyholder to pay.
Homeowners Insurance Deductibles
When you buy a homeowners insurance policy, parts of the policy — such as your structure and possessions coverage — will include damage deductibles. You can choose these deductibles, in most cases.
When you make a claim, the insurer will subtract the cost of the deductible from the total cost of the claim. If the total cost remains higher than the cost of the deductible, then the insurer will pay the remaining cost of the claim. If the total cost falls below the deductible, then the insurer will not pay.
So, suppose a fire damages your house. It causes $5,000 in damage, but you have a $1,000 deductible on your homeowners insurance policy. You are responsible for that $1,000 out of the total damage cost of $5,000. That means your insurer will only pay $4,000 of the total claim cost. Should the fire's damage be less than the $1,000, the insurer will not pay.
When it comes to hurricane deductibles, however, the structure of your costs might be different.
About Hurricane Deductibles
Because of hurricanes' sheer devastation, insurers often have to place certain unique rules on homeowners policies when paying for damage. That's why most states with coastlines, Louisiana included, allow insurers to adapt special rules for applying deductibles.
Hurricane deductibles usually are not flat dollar-values, like $500 or $1,000. Instead, most are a percentage of the total coverage you carry.
So, for example, say that you have insured your home for a total of $500,000. In an ordinary deductible situation, such as if a thunderstorm damages the home, you might only agree to pay $1,000 towards the repair costs. However, in a hurricane situation, your policy might require you to pay 5 percent of the damage costs. That's a $25,000 deductible, as opposed to the flat $1,000.
For your hurricane deductible to kick in, the storm likely has to qualify as an official hurricane. Different states have different rules, but the most-common are when the National Weather Service officially declares the storm a hurricane, and issues a watch or warning for your area. Speak to your Dave Millet Insurance agent to determine when your deductible applies.