Saturday, September 30, 2017

Hurricane Deductible

This post began as a footnote for another post, but grew to the point that I decided to make a post out of it.

After Hurricane Andrew in 1992, the insurance companies complained that they could not afford to pay all of the damage claims, despite the fact that they had been collecting homeowners' insurance premiums without a hurricane making Florida landfall since 1979.  (Hurricane David, a Cat2 storm)

The last time a major Hurricane had hit the state was Eloise in 1975. Despite this, the insurance industry did not have the money to pay claims.) They convinced the state to allow them to only pay a portion of what they were supposed to pay, and then had the law changed so that they would have so-called hurricane deductibles, which are a percentage of your home's value, instead of a dollar amount.

The published insurance literature states that all insurers (for personal lines-homeowners) must offer hurricane deductibles of $500.00, 2%, 5% and 10%.  Obviously, the higher the percentage, the lower the premium cost for hurricane wind insurance.  Of course the trade-off for paying lower premiums is that you expose yourself to a very high cash payout if a hurricane damages your property.

If your home is damaged by multiple hurricanes in a single short period, as happened in Central Florida in 2004, multiple deductibles apply. For example, there were four storms in 2004, your hurricane deductible was 2%, so you would have to pay for $16,000 in repairs on a $200,000 home (8% of the damages) before your insurance would pay a single dime.

On top of this, a hurricane claim will not be paid if the hurricane damage is caused by water on the ground, because THAT is considered flooding. Unless you are in a flood area, you can't even buy flood insurance. What this means is that insurance companies have almost no liability for hurricane damage. Instead, Florida homeowners are left holding the bag. Because of this, when there is a large hurricane, many homeowners simply walk away from severely damaged homes, and banks are left to foreclose or not, with taxpayers having to pay to clean up the destroyed and damaged properties.


chipmunk said...

It has not escaped my notice that ALL types of insurances, from health to life to property insurances, play this type of game. They are happy to take your money/premiums, but make it darned near impossible to get any of it back. Probably a more sure thing to bury it in a jar in the back yard.

Anonymous said...

This isn't a game. It is simple math and statistics. If you want insurance that covers all possible risks you can get it but it will be expensive. If you choose insurance that is affordable but has high deductibles you get what you pay for.