Floridians and others in the path of recent hurricanes just discovered another reason to keep tabs on homeowners insurance.

Californians know all to well, but deductibles can be higher than the damage your home sustains -- especially if you live in areas with a high risk for hurricanes, tornadoes, earthquakes and other natural disasters.

It's one approach insurers use to cut risks. You pay for it.

Warnings about adequate homeowners insurance coverage typically focus on the replacement value of your homeowners insurance policy and tell you to make sure you've got enough coverage to cover the cost of rebuilding your home should it be leveled in a disaster.

But what if your home is still standing with heavy damage?

If your deductible is too large you may have to turn to federal emergency loans and other sources just to cover the cost of repairing your home -- and not get a dime in benefits for the cost of premiums.

Just as the Northridge Earthquake in California buried at least one insurance company, Andrew devastated Florida's property insurance industry blowing many companies out of the state and into bankruptcy. After Hurricane Andrew cost insurers an estimated $20 billion in 1992, insurers not only raised rates to cover their future risk, but they also started writing policies with much higher deductibles -- similar to the approach insurers took in California to avoid too much earthquake-related risk.

That means those flat $500 to $1,000 dollar-based deductibles became percentage-based deductibles and rose as high as 2 percent now and could go to 5 percent after this hurricane season. On a $200,000 home that's $4,000 to $10,000 the homeowner must shell out -- for each incident.

Insurers point out that policies on Florida homes worth less than $100,000 still have straight dollar-value deductibles, but that's fewer than 1 million homes in a state of 17 million people. And it's not just Florida. More than 15 other states have percentage deductibles on homeowner policies, including California's earthquake policies.

But what makes the percentage deductible potentially financially devastating is that it's not a one-time deductible for the year, like, say, some health care policies. Homeowners who've had damage from both Hurricanes Charley (estimated to cost insurers $8 billion) and Frances (costs not yet estimated) must pay the deductible for each claim. If Ivan or subsequent hurricanes are as terrible, some homeowners could pay the deductible three, even four or more times.

There is however legislative action planned in Florida to roll back the need for double or triple deductibles.

Insurers, who obtained the concessions in 1996 as incentive to keep them writing policies in Florida, say the higher deductibles keep rates lower than they otherwise would be. They also say the changes made after Andrew left them prepared to handle a wave of storms which hasn't happened since 1950 when fewer people -- 3 million -- lived in the Sunshine State.

The higher rates and percentage-based deductibles, coupled with a special $14 billion reinsurance fund and insurance industry financing provides ample funds to cover damage from two hurricanes. However, if the state and the insurance industry need to tap more than $5 billion of the fund, homeowners will pay through special assessments attached to their policies and that could push the cost of homeowners insurance even higher.

Published: September 15, 2004

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Broderick Perkins parlayed a career in old-school journalism into a contemporary digital news service that really hits home. The award-winning consumer journalist, originally from Wilmington, DE, is founder, publisher and executive editor of the bootstrap DeadlineNews Group, a Silicon Valley-based editorial content and consulting service specializing in residential real estate, consumer news and related editorial consulting services. The DeadlineNews Group includes the website, DeadlineNews.com, offering real estate editorial content and consulting services, and its back shop, the Deadline Newsroom, an open house on news that really hits home. Perkins obtained his formal journalism education from University of Delaware and a journalism boot camp, the Institute of Journalism Education at the University of California-Berkeley. He went on to 20 years of service as a daily newspaper journalist at the Wilmington, DE News Journal and San Jose, CA Mercury News. Perkins covered housing on the San Jose Mercury News reporting team which earned a General News Reporting Pulitzer Prize in 1989 for coverage of the Loma Prieta earthquake. He has also produced real estate, consumer and small business content for the Wall Street Journal, Los Angeles Times, RealtyTimes.com, Nolo.com, Better Homes and Gardens, the National Association of Realtors, Homestore/Move and Intuit/Quicken among more than three dozen publications. In addition to managing the DeadlineNews Group, Perkins most recently served as chief editorial consultant for Nolo's Essential Guide To Buying Your First Home, Nolo, and writes real estate television scripts for RealtyTimes.com.