Insurance deductibles
Two different deductibles can apply to the same claim, and the difference can become your special assessment.
A deductible is the amount your association's insurance policy does not pay before coverage kicks in. Most master policies carry two: a standard deductible and, in hurricane-prone states, a separate named storm deductible calculated as a percentage of the insured value. Either one can turn into a special assessment if the loss falls short of that number.
Two different deductibles, two different price tags
Every property policy has a standard deductible: a flat dollar amount the association absorbs before the insurer pays anything on a covered loss like a burst pipe or a kitchen fire. In hurricane-prone states, many master policies also carry a named storm deductible, a separate number that applies only once a storm has been officially named, typically one to ten percent of the insured value rather than a flat dollar figure.
"Some insurance policies have a special deductible for losses caused by named storms, like hurricanes."
Source: What Are Named Storm Deductibles?, National Association of Insurance Commissioners
Named storm deductibles currently apply in at least nineteen states plus DC. Check your own declarations page for whether one applies to your association. Florida goes further than most: insurers must offer specific deductible options (a flat $500, or 2, 5, or 10 percent), print a bold warning on any policy carrying one, and convert the percentage into an actual dollar figure on the declarations page at every renewal. Other states regulate this disclosure differently, or not at all, so read your own policy's declarations page rather than assuming Florida's numbers apply.
When the master policy's deductible becomes your unit's problem
Some master policies carry a per-unit deductible, meaning a portion of any claim is assigned to each unit rather than absorbed by the association as a whole. That is one of two conditions that trigger a requirement for individual unit owner coverage (the other is any part of a unit's interior the master policy simply does not cover).
"The maximum allowable deductible for a unit owners property insurance policy for all required property insurance perils is the greater of: 5% of the property insurance coverage amount, or $2,500."
Source: Property Insurance Requirements for Individual Units in a Project Development, Fannie Mae Selling Guide
That individual policy, commonly called an HO-6 policy, must also be written on a replacement cost basis, not actual cash value, so depreciation doesn't shrink what it pays.
Where the money actually comes from
When a loss falls inside the deductible, the association still has to pay for the repair, and boards commonly cover that gap with a special assessment. Your own HO-6 policy can pick up your share of that assessment, but only up to its loss assessment limit, and that limit is usually set lower than most owners assume.
"An HO 6 policy usually comes with only $2,000 of loss assessment coverage."
Source: 10 Steps to a Well-Designed HO 6 Policy, IRMI Glossary of Insurance and Risk Management Terms
Ask your broker to raise that limit, commonly to $50,000 or $100,000, rather than relying on the default. A deductible-driven special assessment can outrun $2,000 on anything larger than a minor claim.
Check yourself
Answer before you read the explanation, recalling it is what makes it stick.
A hurricane damages the clubhouse. The master policy has a 5% named storm deductible on a $2,000,000 dwelling limit. Roughly what does the association pay before the insurer pays anything?
The master policy carries a $25,000 per-unit deductible. Under Fannie Mae's rule, what does that trigger for each owner?
Your HO-6 policy carries the default $2,000 loss assessment limit. The board levies a $40,000 special assessment to cover the master policy's deductible after a fire. How much of that will your HO-6 policy likely cover?
Sources
- What Are Named Storm Deductibles?, National Association of Insurance Commissioners
- Florida Statutes §627.701 (hurricane deductibles), The Florida Senate
- Selling Guide B7-3-04, Property Insurance Requirements for Individual Units in a Project Development, Fannie Mae
- Glossary of Insurance and Risk Management Terms, International Risk Management Institute
Insurance
Not sure whether your unit's policy or the master policy pays first on a claim? See Master policy vs HO-6 next.
Whether a named storm deductible applies to your policy, its exact percentage, and the disclosure rules around it vary by state; Florida's specific mechanics do not automatically apply elsewhere. Loss assessment limits on individual HO-6 policies also vary by lender and carrier.