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Pay More, Get Less: Percentage-based Deductibles

But when major storms began to pummel the East Coast, the concept spread north.

"Insurers are now expanding the northern boundary of the 'named-storm territory' from Virginia to Maine," says David Finnis, who covers the property-casualty market for insurance broker Willis North America. Hurricane deductibles are now in effect in 19 states and the District of Columbia.

According to the III, these states allow percentage-based home insurance deductibles:
  • 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.

But hurricane deductibles couldn't save insurance companies when Superstorm Sandy hit right before Halloween last year. With winds just below the 74-mile-per-hour threshold for hurricane status when it reached land, eight hard-hit states issued "no-hurricane deductible" decrees, and insurers weren't allowed to impose percentage-based deductibles. That cost insurers $25 billion.

And hurricane deductibles couldn't help insurers during the recent spate of 200-mile-per-hour tornadoes, which leveled several Midwestern towns and cost insurers more than $4 billion.

As a result, many insurers now put another so-called "wind deductible" into their homeowners' policies. Simply put: Insurance won't pay if any wind, hurricane-strength or less, blows the roof off your home, or if hail shatters your windows and dents your siding, unless the damage exceeds your percentage-based deductible.

"They will soon be everywhere," complains J. Robert Hunter of the Consumer Federation of America.

Apples to apples

There's a lot of anger over these percentage-based deductibles, particularly in Texas, which is already the most expensive state for homeowners' insurance. (See rankings on the Insurance Information Institute website.)

"We have pushed lawmakers to require home insurers to disclose a dollar equivalent alongside the percentage deductible on the policy so homeowners can make an apples-to-apples comparison," says Alex Winslow, executive director of Texas Watch. "And despite industry pushback, we passed a bill which requires this and are awaiting the signature of Gov. Perry."

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