Insurance can sometimes be complicated and hard to understand. In our “Diving Deep” series we explore sometimes forgotten or misunderstood coverages to help you better understand their application. This specific series will focus on one of the most commonly misunderstood aspects of property and business insurance – deductibles. Now, while most people understand what a deductible is and how it is used by insurance companies, most do not fully understand the nuanced differences between the types of deductibles offered. In this series we will focus on the following deductibles and how they differ from your “AOP” or All Other Perils deductible – wind/hail deductible, named storm deductible, and hurricane deductible.
One thing to note on all percentage deductibles (those outside of your AOP deductible) is that they are taken from your building limit, not the value of your loss. Let me repeat… the percentage deductible is based on the value of your building and not the value of your loss. This is one of the most common misunderstandings as it relates to these types of deductibles. Now that we’ve cleared that up, let’s dive in deeper on the difference between the AOP and wind/hail deductible.
First and foremost, we need to fully understand the AOP deductible in order to properly understand the strengths and weaknesses of the wind/hail deductible. The standard AOP deductible in South Florida ranges from $1,000 to $2,500 and is the most cost effective of all deductibles named here. This is your deductible for all covered losses except those driven by hurricane, wind/hail, or any similar type of event.
Now, let’s talk about what a wind/hail deductible is and how it will apply versus your AOP deductible. To help you better understand this and the other deductibles mentioned, we are going to assume the following facts for the remainder of this series. You own and operate a business in Boca Raton, where you own your building and have $500,000 worth of insurance coverage listed on your property insurance declarations page. You have a $1,000 AOP deductible and a 5% wind/hail deductible. If a covered loss due to fire destroys your building then you would first be responsible for the $1,000 AOP deductible and the insurance company would pay the remaining balance. The AOP deductible applies here since this type of loss is not contemplated by the wind/hail form.
However, let’s say there was a windstorm event that caused damage to your building. The form for this deductible specifically applies to “covered loss or damage caused directly or indirectly by Windstorm or Hail.” While this wording is one of the broadest, it can actually be to the detriment of you, the insured, in relation to a hurricane or named storm deductible. How is this possible might you ask? Let’s examine the below to illustrate this point.
Assuming the same above facts, in the event of a windstorm or hail loss as defined above (i.e. tornado) you would be responsible for the first $25,000 (5% of your $500,000 building limit) of loss before the insurance company would pay. However, if you had a named storm or hurricane deductible then neither of these deductibles would apply as it does not fit the definition of a percentage deductible under either of those two forms. This is where your AOP deductible of $1,000 would come into play. So instead of paying the $25,000 deductible with a wind/hail deductible, you could actually pay way less than that if you had a more restrictive percentage deductible since it would default to your AOP deductible. Do you now see how this broad definition can actually play against you? I hope so. If not, call our office and let us walk you through this even further.
Otherwise, tune in next week to further this discussion and better understand how a named storm deductible applies in the event of a covered loss.
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Written by Robbie Korth
If you have any questions, please feel free to contact Robbie Korth at rkorth@parkassociates.com