Floods are pouring down the road in Muhlenberg Township, Pennsylvania, following a severe storm last August.
Ben Hasty | MediaNews Group | Getty Images
Ongoing climate change and rising timber costs are two things to consider when insuring your homeowner.
Whether you live in an area exposed to hurricanes, tornadoes, floods, hail, forest fires, or severe storms that are becoming increasingly common, it is important to know what types of weather-related damage your policy covers, excludes, or a separate one Fee levies (and probably higher) deductible for.
Add in current lumber prices – they’re up 67% already this year and 340% year over year – and the cost of repairing or replacing your home during severe weather may be far higher than expected.
“You could be a great financial success if you do not understand the policy you are purchasing,” said Spencer Houldin, president of Ericson Insurance Advisors.
With the warmer weather in the US, the likelihood of severe weather increases too. The tornado season is already underway, and the official hurricane season begins June 1st and lasts through November 30th. California and parts of the Southwest have drought conditions that are conducive to forest fires.
According to the National Oceanic and Atmospheric Administration, there were 22 different weather and climate catastrophe events valued at $ 1 billion last year in the United States. There were also 30 Atlantic storms named – a record – of which 12 landed in the United States
Depending on where you live and the typical weather for that area, your homeowners policy may provide coverage for some of the more location-specific events, and state law will often dictate what is required for the policies offered in your jurisdiction.
Here are some things to check in your policy.
Standard policies usually repair or replace your home up to the amount for which it is insured. Or, you may have a clause that increases that replacement amount to 125% or 150% of your home coverage. Or there is no upper limit on the replacement cost.
“If you have a guaranteed reimbursement scheme, see if it is capped at 125% or 150% or not,” Houldin said. “In disaster-prone areas in particular, it is really important that you have adequate coverage.”
When evaluating the replacement cost of your policy, consider the higher cost (e.g. lumber) of rebuilding your home – especially if you took out the insurance some time ago.
Different damage, different deductibles
While many risks fall under the standard part of your policy, some weather-related events fall under a different part that has a different deductible.
If you live in a state on the east coast or the Gulf of Mexico, there is a good chance your homeowner insurance policy has a hurricane deductible. Likewise, in states more prone to wind-related events – that is, tornadoes – you are likely to have a wind deductible.
In either case, these amounts are typically between 1% and 5% (with a minimum of $ 500) depending on the specifics of your insurance contract. Some homeowners may opt for an even higher deductible if it is available. In general, the higher the deductible, the lower the premiums and vice versa.
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It is important to note that for these percentage deductibles, the amount is based on your insured value and not on the damage caused.
If your home is insured for $ 500,000 and you have a 5% hurricane deductible, you are responsible for covering the first $ 25,000 regardless of the total cost of the damage. This means that it is wise to have a plan to cover your stake after a disaster.
For example, Houldin knew a homeowner who had a 15% wind deductible – $ 150,000 – on a $ 1 million home. When strong winds tore the roof, the event caused damage of $ 110,000 – below the deductible.
In other words, the homeowner had to pay for the repairs out of pocket.
Also note that earthquakes aren’t covered by standard homeowner policies, even in quake-prone California (you’d need to get separate insurance). Typically there are also no other types of earth moving (i.e. landslides, sinkholes).
Homeowner policies generally exclude floods from coverage. However, according to the Federal Emergency Management Agency, just one inch of water in your home can cause damage up to $ 25,000 worth of damage. And every fourth flood insurance claim comes from outside a high-risk zone.
For insurance coverage, you need separate flood insurance either through the national flood insurance program of the federal government or through a private insurer. However, be aware that there are exclusions and limitations to coverage. It takes 30 days for the flood policy to take effect. The average annual cost is $ 734, although this can vary widely.
“If you are in a dangerous flood area, the mortgage lender requires flood insurance,” Houldin said. “If you’re in a safe zone, the lender says you don’t need it.”
While floods are a common aspect of natural disasters, less than 15% of homeowners have flood insurance, according to the Insurance Information Institute.
If a homeowner is exposed to storm-related damage that is exposed but is in a federally declared disaster area, there may be government programs that can provide financial assistance, including FEMA grants and Small Business Administration loans. However, this help is not guaranteed and probably wouldn’t get you back on your feet quickly.
For example, after Hurricane Harvey in 2017, which dropped as much as 60 inches of rain in some locations in Texas, the average FEMA grant for individuals was $ 7,000, while the average National Flood Insurance Program claim was more than $ 100,000.
If you are a tenant
Even if you don’t own your home, your finances are still at risk if a storm damages the house or building you live in. While the owner’s insurance covers the structure itself, you are responsible for your own property.
Tenant insurance is an option to cover your belongings. It can also cover the cost of living elsewhere if you cannot stay in your home after a storm or other insured event.
The national average for a policy with $ 40,000 personal property coverage, a $ 1,000 deductible, and liability coverage of $ 100,000 is $ 197 per year, according to an Insurance.com rate analysis . $ 17 per month).
Protect your important documents
Long before a disaster strikes, important documents – like birth certificates, deeds, titles, and tax returns – should be kept securely in a waterproof location, and duplicates should be kept elsewhere with a trusted person, advises the IRS. You can also scan and save them online or on a flash drive.
Additionally, taking photos of the contents and condition of your home can make the insurance claims process easier if your home is damaged.