Deductibles are widely misunderstood by policyholders. In fact, understanding the deductible is one of the most common questions we are asked in working with property owners in the aftermath of a natural disaster that triggers a covered peril. Simply put, the deductible is your contractual obligation with the insurance company to pay a set amount of the total covered damages. An example illustrates this fairly simply: Homeowner Bob sustained hail damage to his house in a recent storm. His insurance company sent an adjuster, who determined that the hail damage was a covered peril, and that his home sustained damages valued at $10,000. Bob had a $1,000 hail/wind deductible. Under the terms of his policy, therefore, Bob would pay the first $1000 of his repairs and the insurance company would defray the remaining $9,000 of expenses to complete his $10,000 worth of repairs.
- This cost to the homeowner of $1000 for repairs is what Bob agreed to in calculation of his premiums, and it is therefore deducted from the monies paid to him from the insurance carrier. However, the value of his damages and the value of the work required to restore his home remains at $10,000, as assessed by the adjuster.
- Here is where is gets complicated for many property owners. If, during the course of repairs, it is determined that additional items are required to restore Bob’s home that were not accurately assessed by the field adjuster, they may supplement and raise…or lower…the adjusted value of his claim.
Suppose that a permit is pulled to complete the work, or a building code requirement triggers additional items that need to be completed in order to complete the repairs, the valuation of Bob’s damages may rise from $10,000 to $15,000, for example.
- Whether the final scope of repair work remains at $10,000 or rises to $15,000 due to supplements, what never changes is Bob’s contractual obligation to pay the first $1,000 of his repairs (also known as the deductible).
- Since the deductible represents the contractual obligation between the policyholder and the insurance carrier, it is illegal for a general contractor or sub-contractor to defray this cost, in part or in whole. That prohibition was codified in the Roofing Consumer Rights Bill, SB38, which became law in Colorado in June 6, 2012 (see attached copy explaining CO SB38).
It is worthwhile to review this bill for the discussion of deductibles, as well as to understand other rights and responsibilities as a policyholder in the aftermath of a disaster that might trigger an insurance claim on your property.
