Jen Smith needed a new roof, but she never expected to get it like this: A hurricane ripped through her neighborhood in St. Petersburg, Florida, and brought a tree down on her house. Fortunately, no one was hurt and her homeowners insurance was ready for a natural disaster—but she got her wish.
“We took pictures, got the tree off as soon as we could, and an adjuster was out pretty quickly to assess the damage,” she said. “Thankfully, we needed a new roof anyway so we did minor fixes to make it through the rest of the season, then replaced it in the spring.”
This is the season for natural disasters. It’s predicted to be an “extremely active” hurricane season, according to the National Oceanic and Atmospheric Administration. And the western United States faces wildfires, erratic weather and whatever else Mother Nature can throw at it. That’s prompted homeowners to ask: Is my house adequately insured for the next natural disaster?
“Natural disasters can take the form of hurricanes, earthquakes, flooding, wildfires, windstorms, hail and freezes,” says Bonnie Steen, a vice president at Burns & Wilcox, a wholesale insurance broker and underwriting manager. “Natural disasters can severely impact one of your largest assets—your residence. At a minimum, an annual review of your coverage with your insurance agent is essential.”
And if you haven’t done that annual review already, the time to do it is now. Smith, a personal finance podcaster, had already done hers and knew what to expect when she filed a claim. After her deductible, she received a check that covered her repairs. But not everyone knows their policy’s details.
So how do you know if your home is ready for the next natural disaster? What kind of coverage should you be paying attention to? What is often overlooked? And if you find a problem, what should you do about it before the next catastrophe strikes?
Here’s what you need to know.
Talk to an Insurance Agent as Soon as Possible
As part of your homeowners insurance review, consider seeking expert advice.
“Homeowners should talk to an independent agent or broker about natural risks that may impact their home, such as hurricanes, wildfires, earthquakes and floods,” says Fran O’Brien, the division president for Chubb Personal Risk Services. Floods and earthquakes generally aren’t covered under a homeowners policy. And coverage for hurricanes or hail storms could come with policy conditions such as high deductibles.
“In addition to peril-specific coverage, homeowners will want to make sure they have purchased enough coverage to actually replace their home, and they should ask about all-risk coverage, which insures all causes of loss that the policy does not explicitly exclude,” she adds.
Depending on where you live and the natural disasters that affect your area, you may need several types of insurance to protect your home. For example, if you live on the West Coast, you may want to look into earthquake insurance. If you live in the Atlantic basin, a good hurricane insurance policy is often a mix of homeowners insurance, flood insurance and wind insurance.
An agent or broker can offer sound advice on the best types of insurance to protect you from a natural disaster.
Are You Ready For a Flood?
A majority of homeowners (62%) believe they are prepared for a flood, but only about 12% have any coverage, according to National Flood Services, a flood insurance processor. The reason? Flood damage is excluded from standard home insurance policies.
“It is a necessity for homeowners to understand how—or if—flood damage is covered under their current policies, especially with the changes in today’s climate,” says Ralph Blust, CEO of National Flood Services.
To find out if you’re covered for a flood, take a look at your current homeowners policy. They typically have a water exclusion clause that encompasses floods due to external causes, sewage or water main failure backups, tsunamis and standing or groundwater, according to Blust.
“Research the area you live in to understand how you may be affected by a hurricane or heavy rainfall,” he says. “You may be at a higher risk than you think.”
If you need flood insurance, it’s important to act soon. There’s generally a 30-day waiting period for coverage to take effect.
What Type of Coverage Is Often Overlooked?
When a heavy storm hits your neighborhood, there are often two types of losses that may not be covered by your policy: food spoilage, sometimes called refrigerated products coverage, and debris removal.
“Some policies provide limited coverage, some provide none, and some only provide coverage for these types of losses as optional buy-ups,” explains Dan Barrett, a vice president at Plymouth Rock Assurance.
For example, if a tree falls in your yard without hitting your house or other structures, your home insurance policy most likely would not cover the cost of removal, unless you purchased extra coverage for debris removal, says Barrett.
But if a tree falls because of a problem covered by your policy (like a lightning strike) and blocks your driveway, your policy might cover debris removal up to a specified limit. For example, a policy might pay up to $1,000 for debris removal costs.
What about a freezer full of food that spoils because of a storm-related power outage? “It depends on what the company provides in its base policy and what may have been added by the customer or agent for optional coverage,” Barrett adds.
If you do have coverage for food spoilage, it will likely have a specified limit, such as $500. But you’re still responsible for your deductible. If you have $400 worth of spoiled food and a $500 deductible, you wouldn’t get an insurance check.
Watch Out For These Insurance “Gotchas”
There are other insurance policy “gotchas” you should be aware of as the number of natural disasters multiplies, according to Sharon Headlee, director of operations for the southeast at CBIZ Insurance Services. That’s particularly true if you own an older home.
“Coverage limitations or exclusions are often overlooked and are more often applicable to older homes,” she says.
Here are some examples:
Actual cash value roof coverage. If your aging roof is significantly damaged during a storm, the insurance company would not pay to replace it with a new roof. “They would pay the actual cash value, and this could lead to high out of pocket costs to homeowners,” explains Headlee.
Wind-driven rain. If your policy excludes coverage for wind-driven rain, make sure to maintain your window and door seals. On older homes, the seals wear down over time, allowing water to enter the structure. That can cause significant damage. Other penalties. The final “gotcha” may be hidden in policy cancellation. If you’re not happy with your current policy or insurer, it may be costly to get out before the next renewal time. Your current policy’s terms may include significant cancellation penalties, says Headlee, such as “short-rate” penalties. It may be better to add coverage types to your policy instead of canceling it mid-term.
Perhaps the biggest “gotcha” is your deductible. I lived in Orlando for 12 years, but the first few months were the most memorable. That’s when three hurricanes grazed our home in Winter Springs within a few months, taking about half the trees with them.
I would have loved to repair the roof or clear the downed trees, but my insurance policy had a high deductible and exclusions that made a claim impractical. I wish I’d paid more attention to my homeowners insurance policy before I bought it, but it was just an item on a checklist when I moved in, I scarcely had a chance to review the basics.
“Many times clients are looking for the cheapest price,” says Anquanie McSwain, an insurance claims adjusters, claims manager and insurance agent from Lawrenceville, Georgia. “But great coverage doesn’t come cheap.”
If Your Home Isn’t Ready For The Next Natural Disaster, What Can You Do?
If you’ve run an assessment of your insurance needs, there’s one more thing to do, says Lisa Lindsay, executive director with Private Risk Management Association, an educational nonprofit.
“Homeowners should validate the home’s replacement cost to ensure they aren’t underinsured,” she says.
If you’re concerned about a natural disaster, you’ll want to pay close attention to two things. The first is replacement cost of coverage. Lindsay notes that homeowners policies have different types of replacement cost clauses:
Some policies cap your claims at the amount listed on the policy.
Some offer guaranteed replacement cost coverage that will replace your home even if it costs more than the coverage limit on the policy.
Others will cap the replacement cost coverage at a certain percentage above the value listed on the policy.
The second issue is your policy’s loss settlement clause. Some policies require homeowners to rebuild the home at the same location. Other policies (depending on your state) allow homeowners the option to take a cash settlement and rebuild or buy a home in a safer place—out of the known path of wildfires or hurricanes.
“The cash settlement option is very appealing to someone who does not want to go through the hassle of a reconstruction project,” she says. “It can also alleviate the emotional turmoil that comes with rebuilding a home in the same place where the devastation took place.”
Experts say you should know the answers to these questions before disaster strikes. Otherwise, an inadequate home insurance policy will add stress to your loss.
Make sure your contact list is updated before the next disaster, too. That’s the advice of Jeff O’Hara, who survived Hurricane Katrina in New Orleans. After the storm, the insurance claims process was understandably slow. O’Hara decided to call a public insurance adjuster to help him sort through the claims for both his homeowners and flood insurance policies.
“At first, both insurance companies tried to say parts of the damage were the responsibility of the other,” says O’Hara, who works for a tourism development company in New Orleans. The public adjuster eventually worked out an acceptable settlement on O’Hara’s behalf.
Before the next disaster strikes, talk to an expert, review the exclusions and common “gotchas,” and then fix your policy before the next storm sweeps through your neighborhood.