Across much of the U.S., a growing number of homeowners are facing a lesser-known cost buried in their policies: a wind and hail deductible that can cost thousands.
ATLANTA — A tornado can tear apart a home in seconds. But for many homeowners, the financial shock doesn’t end when the storm passes — it starts when they file an insurance claim.
Across much of the U.S., a growing number of homeowners are facing a lesser-known cost buried in their policies: a wind and hail deductible that can cost thousands.
“Many insurers are now implementing wind and hail deductibles in tornado-prone states — it’s a growing trend,” said Mark Friedlander with the Insurance Information Institute, a national nonprofit focused on helping consumers better understand insurance coverage. “These deductibles typically range from 1% to 5% of your home’s insured value.”
More states allowing hail and wind deductibles
Wind and hail deductibles are most common in storm-prone regions, including the Plains, Midwest, and increasingly in the East, as tornado trends shift.
“Severe convective storms are now generating more insured losses than any other peril, even more than hurricanes,” Friedlander said. “In fact, the U.S. has seen three straight years with more than $50 billion in severe storm losses — a category that includes tornadoes, hail, and damaging winds.”
Unlike a standard deductible, which might be a flat $500 or $1,000, wind and hail deductibles are percentage-based, and typically range from 1% to 5% of your home’s insured value.
Those costs can add up quickly. For example, a 1% deductible on a $300,000 home equates to $3,000 out of pocket. A 5% deductible would be $15,000.
Friedlander said most of the time, you can negotiate the percentage with your insurance agent, depending on how much risk you want to take.
“Typically you do have options,” he said. “It’s not like you have to take 1%. or 3% or 5%. The higher the deductible you take, the more you need to pay out of pocket. Insurance is about financial protection — know what you can afford to pay out of pocket before disaster strikes.”
Your vehicle isn’t covered
Another common misconception is that your car or truck is covered under your homeowner’s policy if it is parked in the garage.
“Your auto’s not covered by your home insurance,” said Friedlander. “Even if your car is in the garage and, say, your house is damaged and the garage collapses on top of the car.”
In that case, he said you must have comprehensive coverage on your auto insurance policy, an optional feature.
Flooding is separate
Friedlander said flooding would be covered if, for example, your roof is destroyed and rain pours into your home. It is not covered, however, if it comes from the ground-up, like if a nearby creek or stream overflows or flash flooding occurs. For that, you need a separate flood policy, which most people don’t carry.
“Only about 6% of U.S. households carry flood insurance,” he said.
Make sure your policy is up to date
Friedlander said it is also important to talk to you agent to find out if your policy covers replacement costs that reflect current construction costs. Some insurance companies automatically adjust this with inflation, and some do not.
“You want to make sure you have adequate replacement cost,” he said. “Because that’s something we learned over the past several years. With some of the major catastrophes we’ve seen, especially with the LA fire. Many people had a major shortfall of coverage, as their policies were not current. So you want to make sure your replacement costs are reflective of current construction.”
Bottom line
Before you encounter a disaster that could spin you into debt, a simple call to your insurance agent to go over coverage is the best plan of action.
“You need to understand your policy — you don’t want to be surprised after a storm,” Friedlander said.
Based in New York, Stephen Freeman is a Senior Editor at Trending Insurance News. Previously he has worked for Forbes and The Huffington Post. Steven is a graduate of Risk Management at the University of New York.