Beware Hefty Hurricane Loss Deductibles

Hurricane damage to your home? You could be on the hook for a hefty out-of-pocket payment before your insurance kicks in.

This week’s Wall Street Journal article focused on these tricky hurricane deductibles that make you responsible for the first 2% or so of losses. Some consumers opt for even higher deductibles in a bid to save money on their annual premium, volunteering to cover losses up to 5% of their insured value.

But as Hurricane Irma bears down on us, make sure you understand what your homeowner’s insurance will, or will not, cover.  Here’s 3 quick things you need to know:

Important Fact #1: In Florida, windstorm coverage – which covers potential hurricane losses – is a separate item on your homeowner’s policy. Some people try to save money by NOT buying windstorm coverage (coverage is mandatory only when you have a mortgage on your home). For the record, we think this is a major mistake, since it puts the homeowner on the hook for 100% of repairs or rebuilding costs if a hurricane hits.

Important Fact #2: The typical Florida windstorm policy makes the homeowner responsible for the first 2% of insured value. So if your home is insured for $300,000, you will pay out-of-pocket for the first $6,000 of damage from wind loss (a 5% deductible would result in a potential $15,000 home repair bill). This isn’t hidden. It’s written in big, bold letters on every policy (see photo above of an actual policy). The lesson? Know what’s in your policy. Take it out, read it, do the math, and discuss any questions with your agent before a storm hits.

Important Fact #3: What all this means is that homeowners, and especially those in states like Florida, should plan in advance how to cover any emergency repair costs arising from a hurricane. For a $300,000 home, you need up to at least $6,000 to cover the deductible. For a $500,000 home, you’ll have to cover up to at least $10,000, and so forth. Plus, you may need more for damage not covered by the policy (such as screened porches, or high-end landscape damage). Owning a home is great, but it does involve sometimes unexpected financial responsibilities and costs.

About Mari Adam

Mari Adam, Certified Financial Planner™ and President of Adam Financial Associates Inc, has been helping individuals and families chart their financial futures for over twenty-five years. Have a question about your financial situation? Ask Mari!

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