Deductibles. While they are built into every property policy, not everyone fully understands how they work. Let’s fix that!

A deductible is not a bill. You will not receive an invoice from your insurance company asking you to pay the deductible. The deductible is an amount that is deducted from the payment from the carrier. The difference is, essentially, leftover repair costs.

Check your governing documents for deductible responsibility. If the CC&R include a deductible provision, that provision should be followed. Some documents go so far as to outline how the deductible should be divided among units. Other documents state that the association is always responsible to pay the repairs leftover by the deductible, or the owner may be held responsible for only a certain dollar-limit. In most cases, however, the CC&R don’t specifically address the deductible. With the help of legal counsel, we can defer to the repair and replacement responsibilities defined in the document for an idea of how the deductible may be applied. In that case, the owner of the unit with the damage would most likely be responsible for the deductible. If your documents are unclear, consult counsel to determine if you need to create a rule or an amendment to clarify responsibility.

Unit owners can often pass their deductible responsibility to their homeowner’s insurance carrier. Remember that the deductible is a leftover amount of repair costs. If an individual owner or owners are responsible for that portion of repairs, they can usually turn that amount in as a claim on their personal insurance policy.

The higher the deductible, the lower the premium. Many associations are reluctant to choose a $10,000 deductible; however, there are benefits of maintaining a higher deductible. If your governing documents state that the affected unit owners are responsible for the deductible, then it makes sense to choose a higher amount. It keeps the HOA’s cost of insurance lower, encourages owners to have individual policies for their units, and protects the association’s insurability because smaller losses are made the responsibility of the owners. If the association is responsible for the deductible, consider adding an “insurance deductible” line item to your budget.