Natural Disaster Insurance to Protect your Home

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Jen Smith needed a roof replacement, but she didn’t expect to be able to do it as a hurricane battered her St. Petersburg neighborhood and brought down a tree on her home. She was able to get her wish, and no one was injured.

She said that she took photos, removed the tree as quickly as possible, and an adjuster arrived to assess the damage. “Fortunately, we didn’t need a new roof so we made minor repairs to get it through the rest the season and then we replaced it in spring.”

This is the season of natural disasters. According to the National Oceanic and Atmospheric Administration, it’s expected to be an “extremely busy” hurricane season. The western United States is also vulnerable to wildfires, unpredictable weather and other natural disasters. This has prompted homeowners to wonder: Is my home adequately insured for the next natural catastrophe?

Bonnie Steen is a vice president of Burns & Wilcox. She oversees wholesale insurance brokers and underwriting managers. Natural disasters can have a devastating impact on your most valuable asset, your home. It is important to have your insurance agent review your coverage every year.

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If you haven’t already done your annual review, now is the time. Smith, a podcaster on personal finance, had done hers before filing a claim. After paying her deductible, Smith received a check covering her repairs. However, not everyone is familiar with the details of their policy.

How can you tell if your home is prepared for the next natural catastrophe? Which coverage should you pay attention to? What’s often forgotten? What can you do to fix a problem before it becomes a catastrophe?

Here are the facts.

Get in touch with an insurance agent as soon as possible

Consider consulting an expert as part of your homeowners insurance review.

Fran O’Brien is the division president of Chubb Personal Risk Services. He says that homeowners should speak to an independent agent about natural hazards that could affect their home. Homeowners policies don’t generally cover earthquakes or floods. High deductibles are possible as part of coverage for hailstorms and hurricanes.

She adds that homeowners should not only ensure they have peril-specific coverage but also make sure they have enough coverage to replace their home. They should also inquire about all-risk coverage which covers all losses the policy doesn’t explicitly exclude.

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You may need multiple types of insurance depending on your location and the potential impact of natural disasters. You might want to consider earthquake insurance if you are located on the West Coast. A good hurricane insurance policy will include homeowners insurance, flood insurance, and wind insurance.

A broker or agent can give sound advice about the best insurance options to protect you against a natural catastrophe.

Are You Ready for a Flood?

According to National Flood Services (a processor of flood insurance), 62 percent of homeowners believe they are prepared for floods. However, only 12% have coverage. Why? Flood damage is not covered by standard home insurance policies.

Ralph Blust, CEO, National Flood Services, says, “It’s a necessity that homeowners understand how–or whether–flood damages are covered under their existing policies, especially given the changes in today’s climate.”

Check your homeowners policy to see if you are covered for flood damage. According to Blust, homeowners policies typically include a water exclusion clause. This covers floods caused by external causes like sewage backups or main failures, tsunamis, and standing or groundwater.

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He suggests that you do a thorough research on the area in which you live to determine how it might be affected by heavy rains or hurricanes. You may be at greater risk than you realize.

It’s crucial to act quickly if you require flood insurance. The coverage will take effect after a period of 30 days.

What Types of Coverage Are Often Not Considered?

There are two types of losses that can occur when a severe storm strikes your area. These are food spoilage (sometimes called refrigerated product coverage) and debris removal.

“Some policies offer limited coverage, others provide no coverage and some only cover these types of losses as an optional buy-up,” says Dan Barrett, a vice President at Plymouth Rock Assurance.

Barrett says that, for example, if a tree fell in your yard and did not strike your home or any other structures, then your home insurance policy would most likely not cover the cost to remove it unless you have purchased additional coverage.

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Your policy may cover debris removal if the tree falls due to a covered problem (like a lightning strike), but only up to a certain limit. A policy may pay up to $1,000 for the cost of debris removal.

What about food in a freezer that is damaged by a power outage? Barrett says that it all depends on the company’s base policy, as well as what was added by customers or agents for optional coverage.

You may have coverage for food poisoning, but it will most likely have a limit of $500. Your deductible is still your responsibility. You won’t be eligible for insurance if you have $400 worth spoiled food and $500 deductible.

Be on the lookout for these insurance “Gotchas”.

Sharon Headlee (director of operations for the Southeast at CBIZ Insurance Services) says there are many other policy “gotchas” that you need to be aware of. This is especially true if your home is older.

She says that exclusions and limitations on coverage are often overlooked, making them more applicable to older homes.

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These are just a few examples.

Actual cash value of roof coverage. The insurance company will not pay for a replacement roof if your roof is severely damaged by a storm. Headlee explains that they would only pay the cash value. This could result in high homeowner out-of-pocket costs.

Wind-driven rain. Your policy may not cover wind-driven rain. Make sure you maintain your door and window seals. Older homes may have their seals lose their effectiveness over time. This allows water to get into the home. This can lead to significant damage.
Additional penalties. Policy cancellation may be the final “gotcha”. It may cost you a lot to cancel your policy or get rid of your insurer if you are unhappy with the terms of your current policy. Headlee says that cancellation penalties may be included in your current policy terms, including “short rate” penalties. You may want to consider adding coverage options to your policy, rather than cancelling it mid-term.

Your deductible is perhaps the most important “gotcha”. My 12 year stay in Orlando was memorable, but it was the first few months that I remember the most. Three hurricanes struck our Winter Springs home within a matter of months and took about half the trees with them.

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Although I would love to have the roof repaired or the trees removed, my insurance policy had exclusions and a high deductible that made it impossible to file a claim. I wish I had paid more attention before I bought my homeowners insurance policy. But it was just a checklist and I barely had time to go over the details.

Anquanie McSwain is an insurance agent, claims manager, and claims adjuster from Lawrenceville, Georgia. She says that clients often look for the lowest price. But great coverage does not come cheap.

What can you do if your home isn’t ready for the next natural disaster?

Lisa Lindsay, Executive Director of Private Risk Management Association (an educational non-profit), says that once you have done an assessment of your insurance needs, there is one more thing.

She says that homeowners should verify the replacement cost of their home to make sure they aren’t underinsured.

Two things are important to remember if you are concerned about natural disasters. The first is the replacement cost of coverage. Lindsay points out that homeowners policies can have different replacement cost clauses.

  • Some policies limit your claims to the amount stated on the policy.
  • Certain policies offer replacement cost coverage with a guarantee that your home will be replaced even if the total coverage is not enough.
  • Other policies will limit the coverage for replacement costs at a percentage higher than the policy’s value.
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Your policy’s loss settlement provision is the second problem. Some policies require that homeowners rebuild their home in the same place. Some policies, depending on the state, allow homeowners to receive cash settlements and rebuild or purchase a home elsewhere.

She says that the cash settlement option is appealing to anyone who doesn’t want to have to go through the headache of a reconstruction project. It can help to alleviate the emotional turmoil associated with rebuilding a house in the exact same spot as the destruction.

Experts recommend that you know the answers to these questions in order to avoid disaster. A poor home insurance policy can add stress to your loss.

Also, make sure to update your contact list before any future disasters. Jeff O’Hara was a New Orleans survivor of Hurricane Katrina. The insurance claims process was slow after the storm. O’Hara called a public adjuster to assist him in sorting through his flood and homeowners insurance claims.

O’Hara works for a New Orleans tourism development company. O’Hara says that at first both insurance companies tried saying parts of the damage was their responsibility. O’Hara was eventually compensated by the public adjuster.

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Talk to an expert before disaster strikes. He will review your exclusions and common “gotchas” and help you fix your policy before the next storm hits.