The standard homeowners insurance policy usually comes with a deductible in the neighborhood of $500 to $1,000, depending on the agreement outlined when the insurance policy was first issued. Deductibles are usually pretty straightforward; the policy owner is responsible for the first amount of damage up to the deductible, then the insurance company kicks in the rest.
Hurricane (or Tropical Storm) Sandy is proving to be difficult for both insurance companies and policy holders because of the definition of both a deductible and the storm itself. In many states along the east coast, insurance policies are often written with separate hurricane deductibles, ranging from 1%-10% of the value of the property.
A hurricane deductible would require a policy holder to pay the first chunk, then the insurance company comes in. If a policy had a hurricane deductible of 5% of the value of the home and the house was worth $200,000, the policy owner would be responsible for the first $10,000.
Here is where it gets tricky.
Sandy was classified as a hurricane until it made landfall, at which point it was downgraded to a tropical storm. In most cases the hurricane deductible only applies if the wind speed of the storm was determined to be that of a hurricane. Since the wind speed dropped once the damage started happening, in many cases along the east coast the hurricane deductible should not apply.
For policy holders this can mean thousands in savings when it comes to rebuilding their houses. For insurance companies, this can mean millions more in payouts.
Reports have surfaced saying insurance companies have been contacting the NOAA in hopes of getting them to categorize the storm as a hurricane, so they can require the larger deductible. Additional reports have said some insurance companies have been attempting to require policy holders to pay the hurricane deductible before they will cover any costs.
Policy holders that were hit by Sandy need to get in touch with their insurance company and get to the bottom of it. In addition, get a copy of your policy (from the company if yours was destroyed) and make sure you understand what you are liable for. Once that has been established, stay on top of the insurance company so you do not end up paying more than is required.