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One of the key factors to consider when filing a claim and calculating a deductible is the very worrisome homeowners disaster clause. Contractors, as well as homeowners, need to understand what insurance policy they are adhering to details as far as disaster deductibles. Careful research of the wording, not to mention an examination of the contract and some expert advice will ultimately prevent heart-aches, unpleasantness, and unexpected financial surprises during the project. In this article, you’ll see in detail all the homeowners insurance disaster deductibles and understand them.
What exactly is a homeowner disaster deductible? For that matter what exactly is a disaster as far as insurance policies are concerned?
In legal minutia, there’s a term that is often “act of God”. In law, it means that there is wiggle room for one party to negate from fulfilling their part of the contract due to an impossibility or the impracticality of something that could not be foreseen and was out of their hands.
The US, up until 1863, contracts were sacrosanct. failure to honor them could mean interment in debtor’s prison. Then, in that fateful year, something happened… A music hall was struck by a bolt of lightning before a contract of hire could fulfill. That case helped soften that harsh rule of contract obligations. Taylor V Caldwell introduced the doctrine called “frustration of contract”.
“where a contract becomes impossible to perform and neither party is, both parties may be excused from their obligations”.
And the act of God clause was created. If a natural disaster occurs, one outside human control, like a hurricane or a tsunami, no one is held responsible and policy is null and void.
For a while, that was the norm. If a natural disaster struck your home, Insurance companies could blame the homeowner’s desired deity and shrug off their responsibility. Then, something started occurring… Companies started losing customers. People, in areas where “acts of God” were natural, stop insuring their homes. This loss of customers translated into a loss of income. So, insurance companies had no other choice but to introduce a figure called: “insured peril.”
Insured peril is disaster insurance. Disaster insurance is either a rider/add-on or an extra policy the homeowner can purchase that covers against whims of nature and mother earth. They basically are an insurance company’s way of circumventing the “act of God” rule and allowing their clients to purchase a policy that covers their home against natural disasters. BUT, the main IT factor is that these policies, due to the high risk of certain zones — prone to disasters — come with a much higher deductible. One which is sometimes extremely circuitous and hard to calculate.
Act of God deductibles or Disaster Deductibles come in 3 formats: Fixed price, percentage, or hybrid. To explain each we have to first understand the madness/methodology of policies of this type.
Certain states and regions have peculiar characteristics that make them a huge liability to insurance companies. California is earth’s etch o’ sketch with its earthquakes. The midwest is tornado alley. Florida and the Gulf Coast attract hurricanes as if they were moths mesmerize by a flame.
The key to disaster insurance is that they cover you against what you already agreed to withstand by moving into that locale. It’s like going to an insurance company and telling them you want to live next to the active volcano and you want them to pay for a new house if it ever goes kaboom.
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