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Homeowners could save thousands on deductibles after Sandy

The fact that Hurricane Sandy was downgraded to a “Post-Tropical Cyclone” before it made landfall on the East Coast will save homeowners potentially thousands of dollars in home insurance deductibles.  

New Jersey’s Department of Banking and Insurance Acting Commissioner Ken Kobylowski communicated that to the insurance industry Tuesday night and New York’s Governor Andrew Cuomo announced the same Thursday morning.

“Homeowners should not have to pay hurricane deductibles for damage caused by the storm and insurers should understand the Department of Financial Services will be monitoring how claims are handled,” Governor Cuomo said in a release.

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How is a hurricane deductible different from your basic homeowner policy deductible? It is based on a percentage of your property’s insured value, and it can be up to 5 percent. So let’s say your home is insured for $300,000. That’s a $15,000 deductible, which is likely far higher than your regular deductible. The average homeowner deductible is between $500 and $1000.

“We have informed the insurance industry that hurricane deductibles are not triggered because Sandy did not have sustained hurricane-force winds when it made land in New York,” noted NY’s Superintendent of Financial Services Benjamin Lawsky in the release. “We will be working with insurers to help them respond as quickly as possible to homeowners who need to file claims. And we will be sending our mobile command center to hard hit areas to help consumers with insurance questions and problems.”

There is very specific language in homeowner insurance policies in terms of hurricane deductibles. Usually the storm has to reach specific wind speeds to trigger the deductible. A state governor couldn’t necessarily override that private contract.

“The way the insurers look at it is that this is a private contract between the insurer and the policy holder, and the policy as written is going to be enforced,” noted Michael Barry of the Insurance Information Institute. “In this case Sandy does not appear to have reached the threshold to activate the hurricane deductible.”

The insurance companies probably didn’t need Governor Cuomo’s directive as such, since they were already doing their own assessments immediately following the storm.

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“We have done a review of the best available National Weather Service data and compared that to our language, and we have determined that the hurricane deductible will not apply in those states,” said State Farm spokesman Phil Supple.

As for how much the difference in the deductibles will cost the nation’s insurance companies, that is impossible to calculate at this point. The companies are still waiting to get in to the hardest hit areas and tally the damage. It is also, as Supple added, “moot” to do any figuring, as the higher deductible clearly doesn’t apply.