The floodwaters resulting from the intensive rain that recently affected thousands of homeowners in North and South Carolina because of Hurricane Florence and the forest fires that burned out thousands of homes in California earlier this year have taught many of these homeowners one thing: They most probably have inadequate homeowner’s insurance.
That was also a big lesson for many homeowners during 2017 with the major hurricanes and wildfires that occurred that year. In many instances during 2017, homeowners could not fully repair their damaged homes with insurance proceeds they received because these homeowners did not understand until too late what their homeowner insurance policies did, and did not cover, with respect to fire and water damage.
There is no doubt insurance documents – especially the homeowner insurance declaration page – are not easy to understand. But even if a homeowner understands the policy, it is difficult many times to estimate the value of everything in the house. Frequently a homeowner is guessing or “guess estimating” what the value of a damaged or destroyed item was before the disaster.
There is one thing that homeowner insurance policies have in common, yet many homeowners are not aware of, and that is that the standard homeowner’s insurance excludes flood damage. The federal government’s National Flood Insurance Program is the biggest seller of flood policies to homeowners and small businesses.
In August 2017, Hurricane Harvey affected portions of Houston, TX. Flooding that resulted from the torrential and persistent rain of the hurricane damaged properties outside the highest risk flood areas, leaving many homeowners in these areas with flood damaged homes but without flood insurance.
Employees with federally-backed home mortgages must purchase flood insurance if they are located in a designated high-risk flood area. Federal flood insurance policies provide coverage of up to $250,000 for rebuilding and $100,000 for damaged contents resulting from flooding.
For those employees living in areas close to flood-prone areas and who can afford to pay the premiums for a flood insurance policy, a flood policy is worth it just alone “for the peace of mind”. Flood insurance policies may cost $500 to $1,000 a month, depending on where a house is located. Note that a flood insurance policy is in addition to a homeowner’s insurance policy.
Another potential problem is that in many standard homeowner insurance policies, the maximum payout in case damages may be insufficient to rebuild the home and replace its contents. Homeowners often fail to increase policy limits if they upgrade their homes. Homeowners also can find that their policy limits are inadequate when everyone in a disaster-hit area seeks building materials and contractor services simultaneously, thereby driving up costs for building materials and labor.
Homeowners are encouraged to perform certain actions before a disaster strikes to make sure they have adequate insurance. They are:
- Make sure they have “replacement” cost coverage rather than “actual cash-value” (ACV) coverage. Insurance companies sometimes provide ACV coverage that takes depreciation of damaged items into account and therefore could fall short of covering replacement. This leaves a homeowner policyholder more to pay to replace for home contents.
- Make a list and take pictures of home contents if necessary. Homeowners should inventory possessions and store the list outside the home. Employees with expensive items such as jewelry and heirlooms can obtain specialized coverage. If upgrades have been made to the house such as additions, a new kitchen and bathrooms, photographs should be taken and emailed to the homeowner’s insurance company as soon as the additions and upgrades are completed.
Here is a summary of what all homeowners should do when it comes to their homeowner’s insurance:
Read the homeowner policy. While these policies can be difficult to understand, it is especially important to know what is excluded from coverage, like flooding.
Live in or anywhere near a flood zone? Then buy a flood insurance policy through an agent or by contacting the National Flood Insurance Program (https://www.fema.gov/national-flood-insurance-program).
Excess flood insurance. For high value homes, homeowners should consider excess flood insurance to cover losses above the federal policy limits.
Maximum policy payout. Know the maximum a homeowner’s policy will pay out. Be aware that costs spike after disasters.
Home capital improvements. Expand insurance coverage (limits of coverage) after a major home capital improvement.
Inventory possessions. Inventory possessions including proof of purchase and details such as make and model and store this list outside the home.
Steps to avoid claims for water and wind damage resulting from hurricanes and other tropical storms. Take steps to avoid claims such as installing storm shutters and securing one’s roof.