Absorbing the deductible: How deductibles work in Florida property insurance claims
There are certain situations when making a homeowners insurance claim that allow you to offset or eliminate the deductible, but they can be confusing
Almost all insurance policies contain deductibles, and your homeowners insurance or commercial property insurance policies are no different, but the application of those deductibles can be confusing.
VIP Adjusting’s public adjusters have come across countless situations where even the people working for the insurance company can make mistakes and misapply the deductible.
What is a deductible for your homeowners or commercial property insurance?
A deductible can be looked at in any number of different ways for your homeowners insurance or other property insurance, but essentially, it’s the insured’s responsibility to participate in the claim. It can be considered a type of co-insurance, but ultimately, it just means the insured is responsible for participating in at least an amount equal to the deductible.
Homeowners insurance policies in Florida usually carry a deductible of either $500, $1,000, $2,500, $5,000 or in the case of a hurricane, the deductible would likely be a percentage of the policy limit. The hurricane deductible is usually significantly higher than the “all other perils” deductible.
Before the time comes to make a claim, or there’s even damage to a property, an insured homeowner should be aware of their deductible and make an effort to have at least this amount in an emergency savings account.
One of the purposes of a deductible is so that if there is a covered loss to a home, but it isn’t really anything major (the example we usually use is a small hole being knocked in the wall), the insured isn’t calling their insurance company every couple weeks just because they have rambunctious kids. That financial obligation for the homeowner in the event of a claim for property damage also should encourage the homeowner to be more responsible too, since they have some skin in the game, so to speak.
How is the property insurance deductible applied?
The deductible can actually be applied or accounted for in a couple of different ways. The most common way the deductible is applied for a Florida property insurance claim is to subtract that number from the Coverage A (dwelling coverage) amount.
This method is usually most convenient for everyone involved because it’s usually the portion with the largest damage and makes the least impact on the homeowner. Instead of coming up with the deductible up front, the homeowner would then only have to figure out how to pay the amount at the end of repairs because they can use the insurance proceeds to pay the rest up front (assuming they’ve been paid fairly).
Subtracting the deductible from the Coverage A payment is also convenient because the mortgage company will be listed on this check and may be slow to process the insurance claim checks. If there are claims for additional living expenses, loss of use, or contents, those checks would come directly to the insured and could be deposited immediately to allow the homeowner to use these proceeds interchangeably with the dwelling payment, making the funds more liquid.
There are other less common ways to apply the deductible, though. Some insurance companies will apply the deductible to these other coverages. Unless your insurance policy specifies, it’s really up to the insured and insurer to agree on these things, and if there’s a dispute or confusion, a public adjuster would be able to assist you in this situation.
Another less common method of applying the deductible is for the insured to actually pay the deductible up front. This can mean you pay it to the insurance company (we think this is stupid because if they’re going to issue you a payment, you giving them money and them giving you back money is just the same as subtracting it from the total claim amount, but with more steps, even though we’ve seen it done this way anyways...), or the more common of this scenario is for you to pay your deductible to a contractor up front. This could mean, for example, if you have a water mitigation contractor perform drying services that cost $5,000, and you pay your $2,500 deductible to that contractor, the insurance company would only pay the remaining $2,500 of that bill, and your Coverage A Dwelling, contents, and additional living expenses/loss of use payments would all come without any further deduction.
So what is “absorbing” the deductible?
Ok, ok, so technically, there is no such thing as “absorbing” the deductible. That’s more of a colloquial term for “applying the deductible to amounts in excess of the policy limits.” That more accurate description gives a hint into what needs to happen for the deductible to be “absorbed.” You have to have losses in excess of the policy limits.
That does NOT mean that your property has to be a total loss, though. Florida homeowners insurance policies have multiple coverages, including “other structures” which are usually limited to 10% of the Coverage A Dwelling limit, and include things like fences, sheds, and other similar structures. Coverage B limits are usually easily exceeded in the aftermath of a hurricane.
There are also coverages for additional living expenses (which sometimes have monthly limits you may exceed) and contents. Florida property insurance policies also contain a number of sub-limits for certain items. Mold usually has a $10,000 sub-limit that can be relatively easy to exceed. There are also sub-limits for landscaping damages, and trees which can be easily exceeded following a storm. These are the most common sub-limits but your policy certainly has a number of these types of special limits that your public adjuster can review and discuss with you.
Now, on to this concept of absorbing the deductible. If you have insured losses that exceed a policy limit, then you, as the insured, are not only covering the amount you’re required to cover to obtain coverage (also known as the deductible), but you’re actually contributing even more than you’re required because there are losses over the limit. For example, if you have a mold remediation as part of your claim that costs $20,000, the policy limit is $10,000, in order to complete it, you have to pay the other $10,000 which more than meets your $2,500 deductible.
If you’ve got this kind of out of pocket cost for insured losses, it would be improper and inequitable for your insurance company to then deduct an additional $2,500 from another coverage. Believe it or not, our public adjusters have written statements from desk adjusters at one company stating that despite this concept, their company policy is to incorrectly apply the deductible.
Without “absorbing the deductible” the policy limits would be deceptive
Another way to look at this concept is that if there wasn’t a way to absorb the deductible, then the insurance company would never actually have to pay the policy limits. If you have a home that costs $250,000 to rebuild and there was a total loss caused by fire, the insurance company would only have to pay $247,500. That may seem like a drop in the bucket in that example, but it’s not what the insuring agreement says (and Florida’s Valued Policy Law says the limits are to be paid, but that’s for another post).
It would cause a whole lot more problems if the insurance policy was for a mobile home or manufactured home and the policy limits were only $15,000. In the event of a total loss on that policy, the limits should be paid, just as any other policy, but improperly applying the deductible can leave the insured really hurting out of pocket.
That’s the important part of this concept. The insured’s participation out of pocket. It’s required to be at least the amount of the deductible, and once that threshold is met, the policy is supposed to pay the actual amount of the loss to restore the insured to pre-loss condition.
We know these concepts can be complicated and this just adds on to the list of why having a public adjuster in your corner can be invaluable. When the insurance company’s first priority is to its shareholders, it pays to have your own professional looking out for your best interests.
If you are a homeowner or business owner in Martin County, St. Lucie County, Indian River County, or Brevard County, from Hobe Sound to White City, to Indian River Shores, to Palm Bay and Melbourne, VIP Adjusting’s public adjusters are standing by to assist you with your property damage insurance claim needs. Call now or contact us for a free consultation.
The Most Common Landlord Insurance Claims
A good landlord insurance policy is essential to the smooth running of a rental property. Although property owners tend to view the premiums as a necessary evil, it makes good business sense to have adequate landlord insurance.
It can save landlords from paying the penalties for many damaging events that can occur in a rental. However, when buying insurance, landlords should also endeavor to get the most coverage at the lowest premium.
They can do this by finding out what insurance claims property owners are most likely to make. And having known what these claims are, they should strive to avoid the risk of making similar claims.
What are the most common insurance claims that landlords make?
1. Loss of rental income
As with every business, owning rental property comes with a measure of risk. One of those risks is that tenants in a property may stop paying rents. This can happen if some adverse event makes the home uninhabitable and the tenants move out, as a result, or simply refuse to pay the rent. Examples of events that can create such a situation include storm, flood, fire or smoke. When a property becomes uninhabitable, the landlord's rental income stops, but their bills do not. This is why loss of rental income is the number one insurance claim that property owners make.
How to avoid it:
Most loss of rent claims come from events beyond a landlord's control. Property owners cannot do anything to prevent rainstorms or floods. What they can do, however, is limit the risk of man-made events which also lead to loss of rent, such as fire or smoke damage.
2. Water Damage
This results from damage due to the unintentional discharge of water. The common cause of the problem is faulty plumbing, poor plumbing maintenance, and tenants' negligent behavior. This problem is fairly common and very costly to fix. Water damage, if left undetected, can result in massive damage to a property.
How to avoid it:
The best way to solve water issues is to prevent them. The landlord should implement a regular schedule for thorough inspection of the home's plumbing. Tenants should be properly oriented on how to manage the plumbing. And the lease agreement should include clauses on the consequences of tenant-originated water damage.
3. Accidental damage
This claim results when items in the home, or some parts of the structure, are unintentionally damaged by occupants. This could be a case of damage to wooden floors, torn furniture, ripped-up carpets, or a broken television set. Accidental damage poses a risk to a rental property because it makes it less attractive to potential tenants and reduces the home's resale value.
How to avoid it:
Landlords cannot completely eliminate the chance of this happening but they can reduce it significantly. One way they can do this is by using décor that is durable and less likely to get damaged.
When installing fittings and fixtures, owners should prioritize hardiness over other qualities. A thorough vetting of tenants will also help to eliminate renters who are prone to engage in activities that increase the chance of accidental damage, such as parties.
4. Malicious damage
This is damage that is intentional. It includes things like large holes in the walls, kicked-in doors, cigarette holes in furniture or some other form of blatant acts. Most of the time, malicious damage is done by outsiders, such as, visitors to a tenant's apartment. It could also result from vandalism or burglary.
How to avoid it:
The best protection against malicious damage from criminal activity is to implement appropriate security measures. Installing window grills, burglar alarms, motion detectors, and bright lights around the perimeter can deter criminals.
Having sturdy locks on gates, doors and windows, as well as CCTV cameras on the premises will reduce incidences of malicious damage. And landlords should make it the tenant's responsibility to pay for damage caused by their visitors.
5. Weather damage
Storms and floods happen all the time. When they do, they often leave their mark on a property in the form of damage. In some areas, winter storms are the major problem, in others areas, the damage is caused by strong winds.
Floods can also be the cause of damage to a property. There is not much a property owner can do about these acts of nature, except to prepare for them and possibly reduce their negative impact on the property.
How to avoid it:
The part of a building most commonly damaged by storm is the roof. To protect against the probability of roof damage, gutters and downspouts should be maintained properly. Loose and missing shingles amplify the power of wind and water to damage a roof.
They should be repaired or replaced promptly. Raising air bricks around the property and keeping electrical sockets ground will help reduce flood damage. And when there is news of an impending storm, homeowners should take extra steps to protect the home.
Additional Living Expenses (in the midst of a natural disaster)
Additional Living Expenses, sometimes referred to “ALE,” “Loss of Use.,” or Coverage D is a coverage under most homeowners insurance policies that affords compensation in the event of a loss when an insured location, or a part of that location, is not fit to live in or use for its intended purpose.
It can cover a number of things, but is generally an intuitive coverage that operates on the common insurance principle of making an insured “whole.” That means you should be put back in the same, or as similar as possible of a position as you were in before the loss occurred.
With regard to living expenses, incurred costs (yes, you typically MUST spend this figure up front and be reimbursed afterwards) necessary to maintain your normal standard of living is paid, up to the policy limits.
What does this mean in general? If a part of your house is not functioning, say, your kitchen plumbing, and you typically cook your meals at home, you would be reimbursed for meals eaten at restaurants (excluding alcohol, which makes sense, and often excluding tip, which makes less sense) for the shortest possible time to get the kitchen functioning again. Sometimes, this amount may be more accurately calculated as the difference between your average grocery bill and the amount you spent at a restaurant.
If all of your house is not habitable, because there’s no power, it’s not secure after a theft, you have health concerns related to moisture, it’s unsafe after a fire, etc., there are significantly more things that are covered. A short term rental or hotel stay may be in the cards. Or maybe longer. If you have pets, you may be entitled to a more expensive rental that will accommodate those pets, or boarding costs. If you can stay with a relative and you are paying rent or bills, you are entitled to that reimbursement IF you are actually paying it (Please do not write a check that no one ever intends to cash. That is fraud.) If you have to travel additional miles to work or other places you regularly commute, you are entitled to fuel or mileage. There’s more, but these are the most common.
So what about in the aftermath of a hurricane or other disaster causing widespread damage? How do you deal with a dwindling supply of rental properties or hotel rooms?
This was a large problem in the aftermath of hurricane Michael. One of the easiest ways around the problem, if you can be accommodated by it, is to obtain a trailer or camper.
With limited supply of available rentals or hotels, and a skyrocketing price that quickly eats up your policy limit, a trailer or camper can be brought in from anywhere and be had at a semi-reasonable price.
BUT…
You aren’t supposed to be able to BUY a trailer or camper. Why not? “My neighbor got one,” someone might say. Your insurance is supposed to make you whole, not better. You’re supposed to be put back in the same position as you were before, and not a better one.
If you didn’t have a trailer or camper before, and you buy one, you’re in a better position.
HOWEVER…
If you’re hemorrhaging money on a rental or hotel and you’re definitely going to exceed your coverage, you may be mitigating your damages by buying a trailer or camper. You might be “better” but you’re fulfilling a policy duty to prevent damages and saving your insurance company money at the same time.
This type of purchase can be approved, but a cost benefit analysis would need to be done and presented to the insurance company for approval first.
If you’ve found yourself with damage in your home that makes it unlivable, or where the home is uninhabitable during the repairs of damage, contact VIP Adjusting to discuss your options to maximize recovery for your claim.
You might also be interested in:
Learning more about Additional Living Expenses and Loss of Use Claims; or