What is a deductible?

Most homeowners and business owners understand what a deductible is: the dollar amount the insured must pay on each covered loss to which the deductible applies; the insurance company pays the remainder of the covered loss up to the policy limits.

Deductibles allow insurance companies to avoid the time and expense of dealing with small claims and help policyholders to lower their premiums by retaining a portion of the risk themselves. While the proper use of deductibles is a good strategy for both the company and the insured, those that take on too high of a deductible (especially unwittingly) can be in for a rude awakening when they experience a loss.

For example, when choosing a deductible for a personal auto policy, choosing a higher deductible is an easy way to lower your monthly payments. Thousand-dollar deductibles are common and even higher deductibles have become more prolific – especially for some “name your own price” companies the sell strictly on price. These high-deductible policies can become a serious problem for the 60% of Americans who don’t have $500 in savings. For these individuals a claim places a big financial burden on their families and any savings achieved by choosing the high deductible can be lost very quickly if you need to get short-term financing to cover your deductible.

What is a wind deductible?

Just like a regular deductible, a wind deductible is the dollar amount that the insured is required to pay on each covered loss. However, as the name implies, the deductible only applies to the peril of wind. Policies can differ as to what type of “wind” this deductible will apply to: in addition to a “wind deductible” you will often see it described as a “hurricane deductible” or a “named storm deductible” which applies to wind related damage from a hurricane or a named storm respectively.

Wind deductibles can be applied to homeowners, dwelling-fire, business owner’s, and other commercial property policies. These deductibles can be difficult to identify because they are often shown as a percentage rather than a set amount used for a normal deductible. If you don’t fully understand how your policy’s wind deductible applies, you could unintentionally be retaining more risk than you or your business are able to absorb.

5% doesn’t seem like a lot:

As described above, wind and hurricane deductibles are shown on your policy as a percentage rather than a set dollar amount. In Rhode Island insurance companies can apply up to a 5% wind deductible to your property policy. Even if they are aware that there is a separate deductible, many policyholders don’t understand what that percentage applies to.

A common misconception is that the percentage applies to the amount of the claim. Using this thinking, if an insured were to have a $10,000 wind claim and their policy had a 5% wind deductible, the policyholder would be responsible for the first $500 of the claim – not too bad, but…

The amount of the claim is NOT what the wind deductible applies to. Instead, the percentage applies to the total amount of covered property. That means for a homeowner’s policy the wind deductible applies to Coverage A – the dwelling limit. So, if your house is insured for $250,000 that 5% wind deductible would be $12,500 (5% of $250,000.) Suddenly, that $10,000 claim described above is not covered by your insurance policy. For those 6 out of 10 Americans that don’t have $500 in savings a $12,500 deductible could spell disaster. As property values increase, so does the wind deductible. Additionally, hurricane and wind deductibles of up to 5% are regularly added to policies with coastal exposures.

Wind is a common cause of loss

Rhode Island has more miles of coastline per capita than any other state. We have a significant exposure for hurricanes, named tropical and winter storms, and nor’easters. Wind can cause significant damage to both your personal and business property and you should not take on a higher deductible unless you evaluate the consequences and are able to cover the increased deductible in the event of a loss.

Just because your home or business is close to the water does not mean that a high wind deductible is your only option. Shove Insurance has markets that will write coastal exposures without high wind deductibles. Also, discounts are sometimes available for insureds that take steps to mitigate wind-related losses. Call us today to discuss your options and to fins a policy that will meet your needs and fits into your budget – both monthly and in the event of a loss.