Q: How do you explain how a wind or hail buyback policy works? And is a deductible applied to these types of policies?

Response 1: A wind or hail buyback policy “buys down" the regular percentage deductible that a client would have in a wind or hail claim. So, if their primary policy requires a 5% deductible, they could use a buyback policy to reduce that deductible to 1%, reducing the out-of-pocket expense when a loss occurs. The coverage is often available for personal and commercial exposures.

For example, if a person owns a $1 million house with a 5% wind deductible, then their deductible at the time of loss would be $50,000. That amount would be burdensome for many people. The wind buyback policy would satisfy the deductible requirement of the primary policy and would instead have a 1% deductible on the total insured value of the property, thus reducing the out-of-pocket expense for the client from $50,000 to only $10,000.

A video from Securing the Built Environment could be helpful, as well as an article from New Paradigm Underwriters—while it's specific to its product, it still provides a good overview. You should also ask the carrier that's offering this coverage for more explanation about their specific product.

Response 2: There is no quick and dirty explanation of what a wind or hail buyback policy does because deductibles and buyback policies have so many variations from carrier to carrier.

Begin by understanding what kind of a wind or hail deductible policy the insured has in the first place, whether it is an event deductible, a per-building deductible, or a combination deductible for building and contents. Another factor is whether the policy covers outside property or inventory, with or without separate deductibles for those components.

It also is important to know if there is a disaster deductible that applies a single deductible to property and inland marine losses, and might include auto physical damage as well. Sometimes, that disaster deductible is excluded from the wind or hail buyback policy.

The deductible could also be a percentage deductible, either with or without a minimum per occurrence deductible. Also, it's important to know whether the minimum per occurrence deductible is applied to the total loss, to each affected building or each set of building contents, or outside property for each building, or for outside inventory in aggregate—or many other variations.

Response 3: The buyback policies I have seen on large accounts are typically called “deductible buydown." For example, say a property insurance policy has a $100,000 or $250,000 deductible or varying deductibles per peril. If the lender requires lower deductibles, or the client wants lower deductibles for business reasons, the deductible buyback or buydown policy insures the deductibles, reducing them to the desired level, such as $25,000 or $50,000. 

This question was originally submitted by an agent through the Big “I" Virtual University's (VU) Ask an Expert service, with responses curated from multiple VU faculty members. Answers to other coverage questions are available on the VU website. If you need help accessing the website, request login information.

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