Texas General Lines — Property and CasualtyPersonal LinesHard
A homeowner's policy includes a deductible of $1,000. If a covered peril causes $8,500 in damages to their dwelling, and the policy has a 2% hurricane deductible that applies when a hurricane is declared, how much would the insurer pay for a hurricane-related loss if the dwelling is insured for $300,000?
- A$8,500
- B$7,500
- C$2,500
- D$5,500
Show answer & explanationAnswer & explanation
Correct answer: C. $2,500
The hurricane deductible is 2% of the dwelling's insured value ($300,000 * 0.02 = $6,000). Since this is higher than the standard deductible, it applies. The insurer pays the loss minus the hurricane deductible: $8,500 - $6,000 = $2,500.
Why the other options are wrong
- A. This would be the payment if no deductible applied.
- B. This would be the payment if the standard deductible applied ($8,500 - $1,000 = $7,500).
- D. This calculation is incorrect and does not reflect proper deductible application.
Hurricane Deductible
A separate, often higher deductible that applies specifically to damages caused by a hurricane, typically calculated as a percentage of the dwelling's insured value.
- Applies only when a hurricane is declared.
- Usually a percentage of the dwelling's coverage A amount.
- Replaces the standard deductible for hurricane losses if higher.
Memory trick: Hurricane's bite takes a bigger piece, then the policy pays the rest.