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.