Wind and hail claims are among the costliest events for home insurers, and those costs have risen dramatically in recent years with the frequent occurrences of severe weather. Coastal homeowners, many of which have higher-value properties, face an overwhelming financial burden when it comes to their deductible layers. Already-high premiums paired with high deductibles for wind or flood damage can significantly increase financial burden when a loss does occur.
According to the most recent data from the Insurance Information Institute, wind and hail damage accounted for the largest share of claims between 2012 and 2016, with 2.4 percent of insured homes having such a loss. More recently, catastrophic losses resulting from a slew of Atlantic hurricanes, combined with the threat of the slightly above-average hurricane season of 2018, further highlights the need for insurance agents to offer better coastal homeowners’ insurance alternatives to their coastal clients.
Wind deductible buybacks are one way in which agents can offer their clients an option to lower their wind deductible under a separate policy.
How Wind Deductible Buybacks Work
A wind deductible buyback can essentially “lessen the blow” of the homeowners’ wind deductible following the triggering of a wind peril. As an example, on a home with an insured valued of $1,000,000, the standard five percent wind deductible would be $50,000. Without any buybacks in place, the homeowner would need to pay their full deductible amount towards repairing the damage to the home before the insurance coverage would be activated.
With a wind deductible buyback purchased as a separate policy, however, the homeowner can cover up to four percent of their five percent deductible. In the example above, the policyholder could purchase a wind deductible buyback policy to cover $40,000 of their wind insurance deductible, bringing their out of pocket deductible expense to only $10,000.
How Much Do Wind Deductible Buybacks Cost?
The cost of wind deductible buyback insurance can vary based on specific exposures for the home and other factors such as construction and occupancy. Typically, the premium is a percentage of the policy limit, and ranges between four percent and 12.5 percent. So, using the above example, a $40,000 wind deductible buyback could potentially cost the homeowner between $1,600 and $5,000, depending on their specific exposures.
The caveat, of course, is that wind deductible buybacks apply if, and only if, the damage was the result of wind peril. Any damage that is not the result of high winds cannot be covered by the deductible buyback provision, and the standard policy deductible will apply instead.
About Wilmington Insurance Agency
Wilmington Insurance Agency delivers comprehensive coastal property solutions. We are a Managing General Agency and provide independent insurance agents with property and liability insurance solutions for residents and businesses primarily in Maryland and Virginia. We work alongside our sister company, Wilmington Insurance Company, established in 1996 and providing Property & Casualty commercial lines business, homeowners, and condominium insurance in the state of Delaware. To learn more about how we can help you to expand your book of business in the coastal market, contact us at (302) 231-2800.