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Understanding Windstorm Deductibles

Understanding Your Insurance Coverage —Windstorm Deductibles

In the aftermath of heavy hurricane activity in 2004 and 2005, insurance capacity for coastal windstorm property has become increasingly scarce and expensive. Most insurance companies use windstorm deductibles to manage coastal windstorm exposures. NIE policies utilize 5% windstorm deductibles for most coastal areas.

It is important that policyholders understand that insurance companies apply windstorm deductible percentages to the insured property limit; not to the gross amount of the loss. In other words, property insured for $100,000 with a 5% windstorm deductible has a $5,000 deductible for a windstorm loss. If that property suffered a windstorm loss of $20,000 the policy would pay $15,000 ($20,000 less the $5,000 windstorm deductible).

(Many policyholders mistakenly believe that windstorm deductibles are applied to the gross amount of the loss. In the example above, they expect a $1,000 windstorm deductible and are disappointed to learn that the actual windstorm deductible is $5,000. Please note that insurance companies also apply earthquake deductibles to the insured property limit; not to the gross amount of the loss.)

DISCLAIMER: This is only a brief overview of general coverage issues. Actual coverage is determined by the coverage terms, definitions, and exclusions in each individual insurance policy.