Florida Hurricane Deductibles: Choosing 2%, 5% or 10% at Renewal

A lot of Florida homeowners are opening renewal packets right now. The Office of Insurance Regulation (OIR) said on Oct. 29 that more than 824,300 homeowners are getting rate decreases on new policies or renewals this month, with about 450,000 more expected in November, December and January. Before you only look at the premium, check one line that can matter more after a storm: your hurricane deductible.

What insurers have to offer

Under Section 627.701, Florida Statutes, before issuing a homeowners policy an insurer must offer hurricane deductibles of $500, 2%, 5% and 10% of the dwelling limit, unless a percentage works out to less than $500. The offer has to say which deductible applies if you don't pick one, and the insurer must send notice of the available options with each renewal.

The Department of Financial Services' hurricane deductible guide lists the main exceptions:

• Dwelling limits of $100,000 to $249,999: instead of a $500 option, an insurer may offer a policy that guarantees it won't nonrenew you to reduce hurricane exposure for one 12-month renewal period, with up to a 2% hurricane deductible.
• $250,000 or more: the $500 option isn't required, but 2%, 5% and 10% are.
• $1 million to $3 million: an insurer may offer 3%, 5% and 10% instead of 2%, 5% and 10%.
• Over $3 million: only 5% and 10% have to be offered.

DFS also says the deductible must be shown as a dollar amount on your policy, even when it's a percentage. That dollar figure is the number to focus on.

Going above 10% takes extra steps

For a home insured for less than $500,000, DFS says a policy can't carry a hurricane deductible above 10% unless every named insured hand-writes or types and signs a specific statement saying they'll pay that amount of hurricane damage themselves. If the home has a mortgage, the lender also has to approve the higher deductible in writing. In other words, the law makes it hard to take on a very large deductible by accident.

When it applies, and how often

The hurricane deductible only applies during a "hurricane" as defined in Section 627.4025: from the time the National Hurricane Center issues a hurricane warning for any part of Florida until 72 hours after the last hurricane watch or warning ends. Outside that window, your regular all-other-perils deductible applies instead.

It also works on a calendar-year basis. Per DFS, if you're with the same insurer or insurer group and a second hurricane damages your home in the same year, your deductible for the second storm is the greater of whatever was left from the first hurricane deductible or your all-other-perils deductible. When a hurricane deductible applies, no other deductible is added on top.

That calendar-year rule is why the timing of a mid-year switch can matter. If you changed carriers partway through a year in which you already paid toward a hurricane deductible, ask how your new insurer would treat a later storm.

Lower premium or lower out-of-pocket?

A higher deductible generally means a lower premium, but you carry more of the risk. The math is simple and worth doing on paper: on a home insured for $400,000, 2% is $8,000, 5% is $20,000 and 10% is $40,000. Ask your agent to quote the same policy at each option so you can see what each step actually saves per year.

DFS's Hurricane Isaias resource page says most policies carry a hurricane deductible of 2% to 5%. If Isaias hit your area this year, our Isaias claims post covers what the early claims data shows.

What to check at renewal

• Find the dollar amount of your hurricane deductible on the new declarations page, not just the percentage.
• Compare it with last year's. If your dwelling limit (Coverage A) went up, a percentage deductible went up with it.
• Read the renewal deductible notice your insurer is required to send, and note which option applies if you do nothing.
• Get quotes at two or three deductible levels and compare the yearly savings with the cash you'd need after a storm.
• Check your lender's rules before raising the deductible on a mortgaged home.
• Match deductibles when shopping so quotes from different companies are really comparable.

This post is general information, not legal, financial or insurance advice. Confirm your options with your agent, your insurer, Citizens if you're a policyholder there, or the Florida Office of Insurance Regulation.

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Not insurance, legal or financial advice. Confirm details with your insurer, a licensed agent or the Florida Office of Insurance Regulation.