In the past few days, my colleagues in Florida have written some excellent blog posts on Hurricane Sandy, providing helpful tips to all those who have suffered property loss. I want to continue along the same lines, but with a focus on the topic of insurance policy deductibles.

Eighteen states permit insurance companies to impose hurricane deductibles as part of a homeowners policy. These deductibles, as the name suggests, apply to damage solely from hurricanes. Typically, hurricane deductibles vary from one percent of a home’s insured value to five percent. So for instance, if a house is insured for $300,000 and has a five percent deductible, the first $15,000 of a claim is the homeowner’s responsibility. For the thousands of homeowners who experienced losses from Sandy, having to pay a high-cost hurricane deductible understandably makes the path to recovery a lot more difficult and adds to the stress.

To assist those affected by Sandy, state officials in several states along the Eastern seaboard, including New York and New Jersey, have taken action to prohibit insurance companies from imposing the costly hurricane deductibles on homeowners with claims. State governments have made this pronouncement on the basis that Sandy was no longer a hurricane, but a tropical storm when it made landfall and therefore, hurricane deductibles are not triggered.

To be more specific, in New York, hurricane deductibles apply to losses in two scenarios:

  1. A Category 1 or higher hurricane making landfall anywhere in the state as determined by the National Weather Service, or
  2. A hurricane making landfall outside the state but which his determined to have reached Category 1 or higher winds (74 mph or higher) in the area within the state in which the losses occur. In New Jersey, hurricane deductibles apply under similar circumstances.

We often have good reason to be skeptical of what government and lawmakers can do for constituents especially in a time of need. Here, the above actions make very good sense. In the aftermath of Hurricane Sandy, insurance companies have been advised by state officials that they are being monitored on how claims are being handled. Homeowners and those assisting homeowners with claims should make sure the hurricane deductibles, where they are not applicable, are not being imposed unnecessarily.