First (and I believe the most mis-understood) is the percentage-based hurricane deductible. The most common hurricane deductible for home insurance in Florida is the 2% hurricane deductible. That 2% does not mean 2% of the damage caused by the storm. The 2% stands for 2% of your dwelling coverage (or Coverage A). Simply put if your policy covers your dwelling at an amount of $200,000 your hurricane deductible would be 2% of $200,000 which equates to $4,000.
Flat Hurricane Deductible (less common)
Less common but becoming more popular (especially with the recent hurricane activity in Florida) is the flat hurricane deductible. A flat hurricane deductible is just that, a flat amount (usually $500 or $1000). This is easier to understand because it is just a flat amount.
Pros and Cons of Percentage Based and Flat Deductibles
Percentage Based Deductible:
- Lower rate. The insurance companies give lower rates for those who choose the percentage-based deductibles. (which makes sense since they will pay out less).
- During the aftermath of a major storm it allows insurance companies to process overall claims quicker since most of the minor damages being reported won’t meet the higher percentage-based deductibles (this is a pro for those who have major damage not so much for those with minor damage)
- The obvious, 2% of the value of the home can be a lot of money and can be difficult to come out of pocket (especially after a hurricane).
- Most people experience minor damage due to a hurricane (which can still be in the thousands) and these repairs often do not meet the percentage based deductible threshold leaving the home owner financially responsible for the repairs.
- The obvious, coming out of pocket a lot less to repair damages after a hurricane. The difference between a percentage-based hurricane deductible and a flat one is usually in the thousands. In the example used above the difference between the standard 2% and a flat $1,000 would be $3,000 less out of pocket.
- As stated above, most people have minor damages after a hurricane and with a flat deductible you have a much lower threshold to meet before the insurance company will step in financially (helping to cover thousands of dollars of minor damages)
- Choosing a flat hurricane deductible does increase the policy premium (though surprisingly not much and in some cases less than a $100).
- If everyone chose a flat deductible (which is very unlikely to happen) it would make it more difficult for insurance companies to settle claims quickly since they will have more smaller claims to handle.
I hope this article helps! I tried to keep it as unbiased as possible. If you have any further questions I would recommend you contact your local independent insurance agent, or us 🙂 for we would be more than happy to help!
About the Author:
Richard Dixon is the owner and operator of Wellcovered Insurance, a local independent insurance agency located in Orange City, Florida.