Hurricane season could blow big deductibles your way

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Hurricane season is upon us, and trouble is already brewing in the tropics.

As we enter the peak months of July, August and September, experts say we can expect to see up to 12 storms with five hurricanes. Two of those are expected to be major storms.

If you live in a hurricane zone and haven't looked at your homeowners insurance policy closely, you may not realize that you likely have a separate deductible for hurricanes.

Unlike your traditional homeowners insurance deductible, which usually ranges from $500 to $5,000, your hurricane (or windstorm) deductible is based on a percentage of your home's value.

This can range from 1% to 5%. Depending on how much your home is worth, you can be on the hook for a lot of money should your home get pummeled by a hurricane.

If your home is worth $250,000 and you have $50,000 in hurricane damages with a 5% deductible, you could be on the hook for $12,500.

Your windstorm coverage may be combined with your homeowners insurance policy or it may be an entirely separate policy.

In any case, it’s a big shock for homeowners who have storm damage. Many can't come up with that kind of cash.

It’s important to understand this to determine what you would do if you were faced with heavy storm damage.

Would you have the cash to cover a $7,500, $10,000 or $15,000 repair bill before your insurance kicks in? Would you tap a home equity line of credit? Would you have to borrow from your Roth IRA?

One thing I’ve done to ensure I have enough cash on hand is to save on premiums in the first place.

I’ve done that by carrying the highest deductibles I can.

For my regular homeowners insurance, I carry a $5,000 deductible. That means for things like fire, burglary or regular home damage, I’ll have to come up with $5,000 out of pocket.

It means I’m taking on more financial risk, but as a result I save big on premiums.

From the quotes I’ve seen with my insurance agent, I’m saving as much as 35% over carrying a $1,000 deductible.

That means if I go about 2 1/2 years without a claim (which I’ve already done), I’ve saved over $5,000 on premiums.

That money goes straight in the bank, which in turn leaves me better financially prepared should I need to cover a massive deductible.

I wasn’t a homeowner when Hurricane Katrina struck in 2005, but I saw how many people weren't financially prepared for such a disaster.

God forbid it happens again, but I don’t want to be one of those unprepared homeowners looking at a bill and a damaged home like a deer in the headlights of an oncoming car.

While I'm not happy to have higher hurricane deductibles, I also understand that without them windstorm insurance would cost two to three times what it does now.

Hurricane deductibles were introduced in 1992 after insurers had to cover $15.5 billion in damages from Hurricane Andrew. They argued that because hurricane damages can be so costly, they needed consumers to share a larger burden of the costs.

Without these higher deductibles, they say insurance would be even more expensive.

Hurricane deductibles usually kick in when the National Weather Service issues a hurricane watch or warning for your area. But it can vary by state and insurance company. Take a look at your policy to find out what the trigger is.

Hopefully you know that homeowners insurance does not cover damages due to floods, even when those floods are caused by hurricanes.

When Hurricane Katrina put up to 10 feet of water in some homes in New Orleans in 2005, many people did not have flood insurance.

It was a rude awakening when they discovered their insurers did not have to pay them a single dime.

Many had to turn to the federal government for FEMA grants and loans to cover their losses.

The good thing about flood insurance is that it’s relatively inexpensive. Some policies start at $129 per year. You can obtain it through the National Flood Insurance Program.

Even if you’re not on the water or in a flood zone, it’s probably worth it to get a flood policy, because there is no telling what could happen if a major storm rolls into your town.

What's your strategy for dealing with hurricane insurance and deductibles? You don’t have to sign up or login. Just go to the “Comments” box below this story and start sharing.