Authors: Phil Masi Negar Sharifi
For many condominium and homeowners associations, hurricanes represent one of the most significant property risks they face. Yet one of the most misunderstood parts of a property insurance policy is often the hurricane deductible.
Board members are generally familiar with standard deductibles. If a pipe bursts or a vehicle damages a building, the association may be responsible for a fixed deductible amount, such as $5,000 or $10,000.
Hurricane deductibles work differently.
Understanding how these deductibles are calculated and when they apply can help boards make more informed decisions about insurance coverage, budgeting and financial preparedness.
Hurricane deductibles are based on insured value, not repair costs
One of the most common misconceptions is that a hurricane deductible is calculated as a percentage of the damage sustained during a storm.
In reality, hurricane deductibles are typically calculated as a percentage of the building's insured value.
For example, consider a condominium building insured for $10 million with a 3% hurricane deductible. The deductible would be:
$10,000,000 × 3% = $300,000 The deductible remains $300,000 regardless of whether the building sustains $500,000 or $3 million in damage.If the association suffers a covered hurricane loss totaling $2 million, the insurance carrier would generally pay $1.7 million after applying the deductible.The association would be responsible for the remaining $300,000.
Because hurricane deductibles can be substantial, boards should understand how those costs would be funded before a loss occurs.
How associations typically fund deductible expenses
When a significant storm loss occurs, associations often need to identify funding to cover their share of repair costs. Potential funding sources may include:
- Operating funds
- Available reserve funds, where appropriate
- Lines of credit or bank financing
- Special assessments levied on unit owners
Many condominium owners also carry HO-6 policies that may include loss assessment coverage. Depending on policy terms and coverage limits, this coverage may help offset certain assessments resulting from a covered loss.
Because funding options vary by association and circumstance, boards should review their financial contingency plans alongside their insurance program.
Not all hurricane deductibles are the same
The percentage itself is only one factor boards should consider. Equally important is understanding which events trigger the deductible.
