The arrival of Memorial Day weekend also means the arrival just days later of Atlantic hurricane season, which officially lasts for six months.
Long-time coastal residents have come to take this in stride as an annual event. Like spring cleaning, or holiday shopping, except with evacuation plans and stockpiling supplies.
But even long-time residents living in hurricane-prone areas can find it challenging to understand the multiple kinds of insurance that can protect against catastrophic losses to what are most people’s largest assets: their homes.
That can be even more challenging for the countless newcomers who’ve moved to coastal South Carolina from places where hurricanes were not particularly a threat.
For example, if you never had hurricane (“wind and hail”) coverage before, the way those deductibles work can be a big surprise.
Coverage for hurricane damage works differently than basic home insurance, with a deductible typically between 1 percent and 10 percent. One might assume an insured person would pay that percentage of a claim — but that could make for a costly error.
It’s an easy assumption to make, because that’s how health insurance policies typically work. If you have a 10 percent health care deductible, you pay 10 percent of the bill, right?
But a 10 percent hurricane deductible means the customer pays 10 percent of the value of the insured property, before the carrier pays for anything. So, someone with a house insured for $300,000 would be on the hook for $30,000.
Of course, higher deductibles mean lower premiums, because they reduce the insurer’s risk, but people need to understand what they are signing up for. A 10 percent deductible would be a big one, but even a 2 percent deductible would mean $6,000 for someone insuring a $300,000 home.
Understanding what policies cover is also important. For example, what we think of as hurricane insurance doesn’t cover one of the big risks from hurricanes — flooding — and for that you need a separate policy.
It’s easier for renters, because renters’ insurance is more of a catch-all that covers possessions and not the building they are inside.
It’s good to review insurance policies annually because needs can change, and because you might be able to find a better deal. Making sure one has appropriate coverage and manageable deductibles is part of that process.
So, how can homeowners plan for potentially paying thousands or tens of thousands of dollars in deductibles if the “Big One” were to strike?
An emergency fund is the answer, and that’s really something that everyone should strive to have. An emergency fund is ideally several months of living expenses, set aside in case of a calamity or a large, unexpected expense.
In the past I’ve written about Catastrophe Savings Accounts, which are a tax-advantaged way to set money aside in South Carolina, but it’s hard to find banks that offer them, and the money sits in savings accounts earning little interest.
This year the best idea I’m aware of for emergency savings is a federal I-bond (available only online at treasurydirect.gov). Those safe savings bonds are currently paying 9.62 percent interest. The rates reset every six months based on inflation.
They are meant for long-term savings but can be redeemed after as little as a year, at the cost of forfeiting the last three months of interest. That’s much better than getting a onetime South Carolina income tax deduction and then earning very little interest, possibly for years.
Reach David Slade at 843-937-5552. Follow him on Twitter @DSladeNews.