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Hailstorms are an HOAs biggest risk, especially in Minnesota. Here, hailstorms tend to be so damaged that the losses incurred make insuring townhome and condo associations extremely difficult for insurance companies. Wind and hail losses are much more difficult to prevent than other damaging risks like fire and mold.
Due to the instances of hailstorms in the past, many insurers introduced the peril-specific deductible. This deductible is separate and only applies when the loss is causes by a certain issue; in this case, wind or hail. Initially, these peril-specific deductibles were introduced on a per-occurrence or per-building basis. The per-occurrence deductible only applies once each time the particular event happens. The per-building deductible applies separately for each building that is damaged by the particular event.
Many insurers are now choosing to utilize a percentage-based wind/hail deductible. This means that in the event of a loss caused by heavy winds or hail, the deductible will be calculated on a decided percentage of that building’s value—not a percentage of the damage done to the building. This is often a common misconception that creates costly financial errors.
Understanding the differences between these deductible options can be confusing, so make sure to communicate thoroughly with your insurance provider. Not every insurance policy offers the same deductible options we discussed, so be sure to ask when seeking quotes. Additionally, consider getting a roof inspection before approaching insurance companies.
It’s important to consider roof age, materials, shingles, and quality, when deciding upon a policy. Many insurers are willing to offer better rates and deductible options if your association has recently upgraded your roof. High quality roofing materials are always a plus and can give you some leeway on pricing (while simultaneously preventing losses in the first place).
Communicate with your Board and the Association to determine which deductible makes the most sense. In some cases, a high deductible can be so expensive that the amount the association pays out of pocket ends up covering all or most of the repairs needed—making the insurance unimportant in the first place.
While there may be some associations that high deductibles make sense for, it is vital to know what your association has and what your deductible responsibility will be in the event of a loss.