Why is a wind deductible higher than a regular deductible?

A deductible (for property insurance) is the amount of money a policyholder is responsible for paying out of his or her own pocket in the event of a claim.

Typically, personal lines policies (home and auto) have a flat rate deductible.

You may see a $250, $500 or $1,000 deductible apply to any covered property loss depending on your particular policy. Every time you file a claim, you’ll pay this same deductible. It’s meant to deter you from filing small claims that will cost more time than they’re worth. When you’re talking about windstorm insurance, it doesn’t always work the same way. Sometimes, deductibles are percentage deductibles, which is a completely different ballgame.

How much higher are windstorm deductibles?

When shopping for a homeowner’s policy, $500 deductibles are common. You can afford this without too much sacrifice. With this flat dollar amount, you know exactly what to expect. Windstorm coverage can be added to your standard homeowners policy or held as a separate policy.

However you hold coverage for windstorms and tropical storms, cost is something to consider carefully. In states like Florida and North Carolina, the frequency of these storms drives rates up. A 2% deductible may not seem that large. But when you’re talking about hundreds of thousands in damage, even leading to a total loss, 2% could cost you thousands of dollars payable on your insurance policy before you can start repairing your house.

Add this to the fact that windstorm claims come in groups, and insurance companies and customers can easily become overwhelmed. Due to the sudden increased demand for repairs, homeowners are already put on a wait list with many contractors. Not being able to pay your insurance policy deductible can make the wait that much longer. Unfortunately, being displaced from your home comes with its own complications.

Why is there such a big difference? Insurers prefer what they call “ideally insurable” risks.

One of the criteria that makes a risk ideally insurable is that it is not grouped with a bunch of other risks that can cause the insurer to pay several claims at once, adversely affecting their reserves. Natural disasters from wildfires to windstorms and events that require hail coverage are by definition widespread. This leads to extra costs far beyond the norm for insurers.

Can wind be more devastating than claims on homeowners insurance policies?

In the event of an event that calls for windstorm coverage, many claims will likely be turned in to the insurance company, as multiple houses are typically damaged at the same time during a severe storm.

For example, if your home were valued at $200,000, your 2% windstorm deductible would be $4,000 rather than the $500 or $1,000 standard deductible for other losses. Unfortunately, this could be financially painful for many homeowners. While FEMA will get involved in the event of major disasters, your insurance coverage fills in a very big gap, especially if you don’t want extended delays in repairs.

Why? Well, if 50 homes in your neighborhood file a claim for the same event, the insurance company would be able to collect quite a bit more money by charging a higher deductible, thereby protecting their finances and reserve ratio.

In turn, it keeps them in business and allows them to make good on all those claims. It also keeps rates more affordable for homeowners with or without current tropical storms in the air.

For a non-windstorm claim, you may only need to pay a $500 deductible or something similar.

While insurance companies could charge percentage deductibles for standard homeowners insurance, it would put them at a distinct disadvantage with competitors. So they’re highly unlikely to do it. Likewise, charging the high fees for hail and wind coverage with your homeowners policy could put some at a disadvantage in the market. They cannot offer comparable pricing to competitors. So they separate it out to make their plans more attractive to an independent insurance agent and customers.