One of the key factors to consider when filing a claim and calculating a deductible is the very worrisome homeowners disaster clause. Contractors, as well as homeowners, need to understand what insurance policy they are adhering to details as far as disaster deductibles. Careful research of the wording, not to mention an examination of the contract and some expert advice will ultimately prevent heart-aches, unpleasantness, and unexpected financial surprises during the project. In this article, you’ll see in detail all the homeowners insurance disaster deductibles and understand them.
Homeowners disaster deductible
What exactly is a homeowner disaster deductible? For that matter what exactly is a disaster as far as insurance policies are concerned?
In legal minutia, there’s a term that is often “act of God”. In law, it means that there is wiggle room for one party to negate from fulfilling their part of the contract due to an impossibility or the impracticality of something that could not be foreseen and was out of their hands.
The US, up until 1863, contracts were sacrosanct. failure to honor them could mean interment in debtor’s prison. Then, in that fateful year, something happened… A music hall was struck by a bolt of lightning before a contract of hire could fulfill. That case helped soften that harsh rule of contract obligations. Taylor V Caldwell introduced the doctrine called “frustration of contract”.
“where a contract becomes impossible to perform and neither party is, both parties may be excused from their obligations”.
And the act of God clause was created. If a natural disaster occurs, one outside human control, like a hurricane or a tsunami, no one is held responsible and policy is null and void.
God Overturned: Insurance disaster deductibles in detail
For a while, that was the norm. If a natural disaster struck your home, Insurance companies could blame the homeowner’s desired deity and shrug off their responsibility.
Then, something started occurring… Companies started losing customers. People, in areas where “acts of God” were natural, stop insuring their homes. This loss of customers translated into a loss of income. So, insurance companies had no other choice but to introduce a figure called: “insured peril.”
Insured peril is disaster insurance. Disaster insurance is either a rider/add-on or an extra policy the homeowner can purchase that covers against whims of nature and mother earth. They basically are an insurance company’s way of circumventing the “act of God” rule and allowing their clients to purchase a policy that covers their home against natural disasters.
But, the main IT factor is that these policies, due to the high risk of certain zones – prone to disasters – come with a much higher deductible. One which is sometimes extremely circuitous and hard to calculate.
Homeowners Insurance Disaster 101
Act of God deductibles or Disaster Deductibles come in 3 formats: Fixed price, percentage, or hybrid. To explain each we have to first understand the madness/methodology of policies of this type.
Certain states and regions have peculiar characteristics that make them a huge liability to insurance companies. California is earth’s etch o’ sketch with its earthquakes. The midwest is tornado alley. Florida and the Gulf Coast attract hurricanes as if they were moths mesmerize by a flame.
The key to disaster insurance is that they cover you against what you already agreed to withstand by moving into that locale. It’s like going to an insurance company and telling them you want to live next to the active volcano and you want them to pay for a new house if it ever goes kaboom.
Nonetheless, insurance companies had to adapt. So, what they did is give homeowners three types of disaster policies to choose from. Each with its deductible and legal jargon. By legal jargon, we mean the specific “triggers” selves by the insurance company before they can enact that rider/add-on.
For example, in Hurricane deductible, the first need the National Weather Service (NWS) to officially declare a hurricane watch or a warning and define the hurricane’s intensity.
The 3 types of deductibles in Disaster Insurance
Percentage: Homeowners Insurance Disaster Deductibles
Within the policy, the homeowner pays a lesser/cheaper premium but agrees to front a percentage of the replacement value. Renovation of the structure insured. In many cases, depending on where you’re located and the price of your premium this value might be 2% to 20% of the estimate the contractor gives you. Percentages are mandatory in right-risk areas like coastal towns.
Set Value
Policyholders have the option to pay a higher premium or extra insurance or rider in return for maintaining their traditional dollar deductible. In other words, you pay a much higher premium but no matter the value of the claim or whether or not it was a disaster you end up paying the baseline deductible you’ve always had.
Hybrid Homeowners Insurance Disaster
Hybrids are a mix and match of the former two types of deductibles. The homeowner reaches an agreement with the insurance company and pays a slightly higher premium. But in doing so dips the percentage they would have to pay in the event of a disaster.
Of the three, there really isn’t a clear winner or a simple calculation to compute how much your deductible is. It depends on your contract and your region. Insurance appraisals know which areas are more likely to get struck by hail, a tornado, or a flood.
They are well aware of the possibilities of your home suffering the brunt of a hurricane. The more likely they estimate this might happen the more they will charge you. It’s always good to lower your percentages while also keeping a watchful eye on your premiums.
To learn more about how the deductibles work and how to set up a reasonable deductible.
It’s important to understand your endorsement/riders/add-on. These extras which you sign for have a different set of deductible amounts. Completely different from your normal personal property coverage.
It is important for both the contractor, as well as the homeowner. So, to note if the damage was caused by a disaster. So, be able to properly calculate how much the deductible will be before the claim is fully by the insurance company.
