With Hurricane Florence threatening the East Coast and two more storms brewing in the Atlantic, protecting life is the priority. But natural disasters are also a stark reminder to all homeowners that what you don't know about your insurance policy can hurt you when it's time to clean up and assess the damage.
A standard homeowners insurance policy protects your home against some natural disasters, but not all (like flooding, for instance). And, in many cases, homeowners don't read their policy until they file a claim and, by then, it's too late. It's imperative homeowners prepare their homes and check their coverage ahead of time.
The potential for widespread devastation is staggering. In North Carolina, South Carolina and Virginia, 758,657 homes with a reconstruction cost value of roughly $170.2 billion are at risk, according to CoreLogic. With stakes so high, here are seven things to know about how homeowners insurance works:
1. Homeowners insurance typically covers four main categories
A standard homeowners policy provides protection for:
1) your dwelling (the structure of the home);
2) detached units (like a shed or detached garage);
3) personal property (your belongings); and
4) living expenses if you're displaced.
Generally, the limit for personal property is a percentage of the insured amount of the dwelling, says Britta Moss, a veteran insurance consultant with Highbanks Insurance Professionals in Delaware, Ohio. Many insurers provide personal property coverage of 50 percent to 70 percent of your home's insured value, according to the Insurance Information Institute, or III. If you need more (or less) coverage, you can tweak your policy by talking with your insurance agent, Moss says. The more coverage you add to your policy, the more you'll pay for it.
Understanding your coverage for living expenses is also important because you might be displaced for a long time after a major storm. This coverage pays your living expenses, such as a hotel, after a loss while your home is being repaired or rebuilt. Find out what triggers it, exactly how much it pays out, what expenses are covered, and for how long, Moss says.
2. You may have a hurricane deductible, and it can be pricey
You may not realize it, but insurers in coastal states include separate deductibles for hurricanes in their standard homeowners policies, usually on the front of the policy and on the declarations page, says Lynne McChristian, communications consultant for the Insurance Information Institute.
Hurricane and wind/hail deductibles typically range from 1 percent to 5 percent of the insured value of the home's structure, according to the institute. For example, if you have a single-family home insured for $250,000 with a 5 percent hurricane deductible then you'd pay the first $12,500 of your claim out of pocket.
"Many people are not financially or mentally prepared to pay that amount," McChristian says, adding that hurricane deductibles are paid annually (not by event). Once you meet your deductible, it can apply to other hurricane-related claims that occur at other times during the year, she notes.
3. You must purchase flood insurance separately
Some homeowners may be surprised to learn that flooding – even from a hurricane – is generally not covered by a standard homeowners insurance policy. If you live in a federal flood zone and you have a mortgage, you likely had to purchase flood insurance through the National Flood Insurance Program, or NFIP, when you bought your home.
The federal program provides up to $250,000 in dwelling coverage and $100,000 in personal property coverage, according to the Federal Emergency Management Agency, or FEMA, which administers the NFIP. If the value of your home exceeds the NFIP limit, your lender may require you to purchase additional flood coverage from a private insurer – even if the federal government doesn't require it in a lower-risk area.
More than 20 percent of flood claims come from properties outside high-risk federal flood zones, according to FEMA. It's better to err on the side of caution and buy flood insurance if your area is at all subject to flooding. Otherwise, you could be stuck with the entire bill if your home is damaged by water, says Sara Singhas, associate regulatory counsel at the Mortgage Bankers Association.
"FEMA maps are outdated, and some parts of country are not mapped," Singhas says, adding that the "binary conversation" about flood insurance measures risk as being inside of a high-risk flood zone – or outside of it. "The reality is water doesn't stop at that line. There's too much at stake."
4. Pay close attention to what's excluded from your policy
Reading and understanding your policy's exclusions page is key. According to the III, these items are typically excluded from most standard homeowners insurance policies:
Floods – Water damage requires a separate flood insurance policy. If your home is located in a federal flood zone, you can purchase insurance through the NFIP.
Earthquakes – Ground movements, such as earthquakes, landslides or sinkholes, require specialty insurance coverage in most cases. In Florida, though, insurance companies are required to provide "catastrophic ground cover collapse" in a standard homeowners policy for sinkholes that cause severe enough damage to make a home unlivable.
Maintenance damage – As a homeowner, you're responsible for routine maintenance of your home and its structures. If damage arises from failing to perform such tasks, your insurer can deny your claim.
Sewer backup – Sewer backup coverage can be purchased as a separate policy or as an endorsement (an amendment) to your existing homeowners' policy.
5. Your current coverage may not be enough
It's possible your insurance won't cover the full amount of your loss and you need to increase the amount. This depends on whether your policy uses actual cash value (ACV) or replacement cost value (RCV) to pay out claims, Moss says. RCV policies ensure you'll receive the full amount of money needed to replace covered damages with materials similar in quality to what you had. You'll typically pay a higher deductible for an RCV policy, but the enhanced protection offers more peace of mind if your home or property are destroyed.
ACV policies, on the other hand, are less expensive but pay less money when you file a claim. The "actual cash value" is calculated by subtracting depreciation, or the amount the item was worth at the time of damage or loss, from the replacement cost.
Keep in mind that coverage varies among insurance companies. Talk with your insurance agent or company to find out what type of policy you have and to determine if you need additional coverage, especially if you've made recent home improvements or you have valuable personal items. You want to be sure that if you had a total loss of your home tomorrow, your homeowners insurance policy would pay enough to build the exact same house in the same spot.
6. Regular documentation can help streamline the claims process
Take photos and video of the interior and exterior of your home routinely (every six months to a year) to document what your home looks like and what's in it. If you've done major renovations or repairs, make an inventory of that, too, and upload all of the documentation to the cloud so you can access it remotely, Moss says.
After a storm, it could take time for an insurance adjuster to inspect your home so document everything again as soon as you can. Having your own documentation can help your insurer process your claim more quickly and resolve potential claim disputes, Moss says.
7. Renters and condo owners typically need special coverage
If you live in an apartment, your landlord insures the building, but you need to carry insurance for your possessions, or renters insurance, McChristian says.
If you own a condo, find out what areas are covered by the association and what you'll need to insure. In addition to your personal items, it's possible that you need to insure a portion of the structure. Check with your association attorney or property management company before you buy and find out exactly what type of policy you'll need.
Once a storm has formed, it's too late to buy insurance or adjust your existing policy. Speak with your insurance agent about your policy and whether your home and its contents are adequately covered. If there's anything you don't understand about your coverage, ask your agent to clarify. And if you're looking to buy a home soon, shop around with multiple insurance companies to compare pricing and coverage. Finally, don't skim-read your policy.
Take the time to understand what it includes (and doesn't), how to file a claim, and any additional coverage you might need to purchase.
This article was written by Deborah Kearns, and published in the Miami Herald.
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