What Is Hurricane Insurance? Definition, Coverage, and Costs

What Is Hurricane Insurance?

Actually, hurricane insurance doesn't exist as a specific, separate type of policy. The term often refers to what is, strictly speaking, a hurricane deductible on a homeowners insurance policy: an extra amount a homeowner must pay before the insurer will cover the damage or destruction caused by a hurricane. A percentage of the property's worth, this deductible is common in 19 hurricane-prone states and the District of Columbia.

Hurricane insurance can also refer to special types of catastrophe insurance that specifically cover flooding or extreme winds (which actually do the damage to the property). These policies are also typical—and sometimes required—in high-risk hurricane states, such as Florida and Texas.

Understanding Hurricane Insurance

Hurricane deductibles are separate from regular homeowners insurance deductibles and are based on a percentage of the home’s value. While a regular homeowners insurance policy deductible is a fixed dollar amount—say, $500 or $2,000—a hurricane deductible might be 2% to 5% of a home’s insured value, or $2,000 to $5,000 for every $100,000 in home coverage.

Hurricane deductibles first developed in 1992 after Hurricane Andrew’s massive damage to South Florida inflicted major losses on homeowners insurance companies, but they became more widespread in 2005, in the wake of Hurricane Katrina. Insurance companies turn to reinsurers when they’re having trouble paying large amounts of claims all at once, but even reinsurance companies were struggling under such enormous losses. As a result, insurance companies began requiring hurricane deductibles in 19 states and Washington, D.C. Homes in these states, which are all on the Gulf of Mexico or Atlantic Coasts, are susceptible to hurricane damage.

For a homeowner to be required to pay a hurricane deductible, there usually must be a named hurricane in the area. Sometimes a severe tropical storm will trigger the deductible. The hurricane deductible will be in effect for any damage that occurs until the storm is downgraded. Rules vary by state.

Even when a hurricane deductible doesn't apply, a windstorm deductible might. A windstorm deductible applies to damage from any kind of high wind. It can run a little lower than a hurricane deductible, sometimes as low as 1% of the property's insured worth.

States Where Hurricane Deductibles Apply

The states/regions where hurricane deductibles apply are:

• Alabama
• Connecticut
• Delaware
• Florida
• Georgia
• Hawaii
• Louisiana
• Maine
• Maryland
• Massachusetts
• Mississippi
• New Jersey
• New York
• North Carolina
• Pennsylvania
• Rhode Island
• South Carolina
• Texas
• Virginia
• Washington D.C.

Policies Offering Hurricane Coverage

Homeowners should also be aware that even if they pay a hurricane deductible, gaps in their coverage might exist. Most homeowners policies exempt flooding from an outside natural event, like a hurricane. So, property-owners need a separate flood insurance policy to cover such water-related destruction or damage.

Also, homeowners insurance policies in some hurricane-prone states won’t pay for wind-related damage. So, if you want to protect your property, you must purchase separate windstorm insurance. In this case, all wind damage or destruction would fall under this policy instead of the traditional homeowners policy. On top of hurricane coverage, windstorm insurance applies to problems stemming from tornadoes, cyclones, and other types of high-speed winds.

How Hurricane Deductibles Are Calculated

To some degree, depending on the state, insurance companies dictate the level of the hurricane deductible and where it should apply. However, insurers' hurricane deductible plans are subject to state insurance departments and may be subject to various regulations and laws. Rhode Island, for example, sets a cap of 5% on hurricane and windstorm deductibles.

In Florida, located in a particularly hurricane-prone region, state law sets some requirements. Homeowners have to have the option of a $500 flat-rate hurricane deductible. Premiums may, of course, be higher than if you choose one of the other mandated options: 2%, 5%, or 10% of the insured value of the residence.

In some states, homeowners may pay lower insurance premiums if they make improvements to their home to minimize damage from a hurricane, such as installing storm shutters or hurricane-resistant laminated glass windows and doors.

The Bottom Line

Hurricane insurance can be a valuable tool to protect your from financial hardship in the event your home suffers from damage from a hurricane. Whether hurricane insurance is right for you will depend on a number of factors, including the risk that a hurricane will damage your home and your own financial situation. Consider consulting a financial advisor for guidance with your specific needs.