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 post we will focus on the named storm deductible and how it differs from your “AOP” or All Other Perils deductible.
Before we jump into it… I want to repeat something from last time… the percentage deductible is based on the value of your building and not the value of your loss. Now that we’ve cleared that up, let’s dive into how a named storm deductible applies!
With a named storm deductible you have to focus on a few things. First and foremost, this deductible applies to only named storms (i.e. Tropical Storms, Hurricanes, etc.). If it is not a named storm then your AOP (all other perils) deductible applies, which is significantly lower than most named storm deductibles. With a named storm deductible, there are two kinds of property to be concerned about in regards to loss… each building and the personal property within that building(s) or in the open. In the event of a covered claim the deductible will be calculated for both your building(s) and personal property separately. How does this work?
Say a covered tropical storm loss causes $100,000 of damage to one of your buildings and $20,000 worth of damage to your personal property. Your insurance policy shows your buildings value at $500,000 and a 5% named storm deductible. Because the tropical storm was a named storm this deductible would apply. You would be responsible for the first $25,000 of damage to your building and to your personal property. The deductible would apply separately. Because your personal property loss would be less than your deductible… you’d be responsible for all of the financial loss to that personal property. Bringing your total potential recoverable amount down from $120,000 to $75,000 – leaving a $45,000 gap that you are now responsible for paying.
If you had a more restrictive deductible (yes, this is one case where restrictive is better)… say a hurricane deductible… your AOP deductible would have applied in the above situation. If you had a standard $1,000 AOP per occurrence deductible then you would have only been responsible for $1,000 of payments (your deductible for the building and personal property combined). Bringing your potential total recoverable amount to $119,000 and reducing your out of pocket cost by $44,000. Talk about some serious savings!
Tune in next week for the final installment of this series where we discuss my favorite deductible… the hurricane deductible!
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Written by Robbie Korth
If you have any questions, please feel free to contact Robbie Korth at firstname.lastname@example.org