Could disaster strike twice?
Some people whose homes have been destroyed by hurricanes, wildfires or other natural disasters can't afford to fix or replace their houses because of inadequate insurance coverage. Many homeowners don't realize what their policies cover — and what they don't.
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It's peak season for natural disasters — from hurricanes to wildfires — and this year could bring some nasty and financially devastating surprises for unprepared homeowners. A growing list of policy exclusions has shifted more of the liability in disasters to consumers, and consumers often aren't aware of that liability, says Bob Hunter, director of insurance for the Consumer Federation of America, an advocacy group.
"It's very hard for a regular person to find out what kind of coverage they have," given the confusing language in insurance documents, Hunter says.
One prime example of this consumer confusion is hurricane coverage. While damage from these storms is covered in most homeowner policies, the water damage caused by hurricane flash flooding is not. That requires separate flood insurance, something only a small fraction of consumers carry.
Moreover, even if policyholders do have the right kind of coverage, they often don't have it in the right dollar amount to replace the house, experts say.
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One of the biggest mistakes people make is insuring a home for its resale value rather than the cost of rebuilding it, says Loretta Worters, vice president of the Insurance Information Institute.
"They can be underinsured by doing that," she says.
In the institute's 2010 Pulse Survey, 48% of those polled thought their homeowners insurance premiums were based on the market value of the home. Many people pared back coverage after watching real-estate values slide.
But the cost of rebuilding, including materials and labor, has been going up. And it can be even more expensive when many of the homes in an area are affected by a hurricane or earthquake and local contractors and supplies are fully committed.
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Overages aren't automatically covered by insurers as they were in years past, says Jeremy Bowler, senior director of J.D. Power's insurance practice.
Bowler says that guaranteed replacement policies "have sort of gone away." And insurers aren't held liable if they guided you to lower coverage to get your business, Hunter says.
However, many insurers do offer extended replacement coverage to protect against rising labor and materials costs. These premiums are about 10% higher annually, Worters says.
Save now, pay later
Many homeowners knowingly roll the dice when it comes to insurance coverage, hoping to save money. In J.D. Power's 2011 U.S. National Homeowners Insurance Study, 16% of policyholders said they do not carry adequate coverage to rebuild their home in the event of a total loss.
"Insurance is one product that we all buy, but hope we never need," Bowler says. "Most people just buy what they have to buy" as required by the lender at the time they purchase their home.
Then they forget about it. They go for years without talking to their agent, and they don't bother to account for home upgrades and expensive purchases, such as that fancy plasma television or those new granite countertops, or even the rise in value of a piece of artwork or jewelry.
And many fail to get adequate insurance for expensive jewelry, watches and electronics, says Christie Alderman, vice president of new products and services with Chubb Personal Insurance. Payout limits for these items can top out at $1,000 with some insurers, hardly enough to cover some of the most precious family heirlooms or your laptop and iPad.
Sadly, Bowler says, "What we find is that the best-informed customers tend to be customers who have had a claim."
In other words, most people learn the hard way that they won't fully recoup their losses, and are more diligent about shopping for coverage or reviewing their policy afterward.
Hurricanes and floods
This consumer confusion was made apparent in the wake of Hurricane Irene, which battered the East Coast last year. Fewer than one in 10 homeowners in the New England and Mid-Atlantic states reported carrying flood insurance before Irene, according to J.D. Power's survey, and therefore, most people wound up paying out of pocket for damage to their homes.
Standard homeowners and renters insurance policies cover water damage only when wind rips open the roof or shatters windows, allowing moisture inside. It does not cover rising waters from spot flooding or storm surges.
Nearly all flood coverage is purchased through the government's National Flood Insurance Program, and the cost of these policies — available to homeowners, renters and businesses — averages about $600 a year, according to the Federal Emergency Management Agency, which administers the program. Some private insurers also offer it.
However, this coverage has limits. Homeowners who have structures worth more than $250,000 and who have more than $100,000 in personal possessions would have to purchase supplemental coverage, Alderman says.
Another huge cost that most policyholders overlook until it comes time to repair is the special hurricane deductible that insurers in 18 high-risk states from Texas to Connecticut are allowed to include on policies. These deductibles, which range from 1% to 5% of the value of a home, must be paid in addition to a homeowner's standard $500 to $1,000 deductible if a hurricane causes the damage. A homeowner with a 3% deductible on a $300,000 home, for instance, would have to pay $9,000 plus his $500 deductible before an insurer would cut him a check.
Earthquakes and wildfires
Other natural disasters that most people aren't prepared for are earthquakes and wildfires.
Structural damage from earthquakes is not covered in most standard homeowners policies. Oddly enough, coverage for other damage during a quake is, such as fire and water damage from burst gas and water pipes.
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Earthquake coverage may be purchased in the form of an endorsement or rider on an existing policy, Worters says, at an additional cost. In high-risk California, homeowners can get coverage from the California Earthquake Authority, a privately funded, publicly managed organization, as well as from some other private insurers. However, only 13% of U.S. homeowners buy earthquake coverage, the Insurance Information Institute says, in part because of its prohibitive cost, including percentage deductibles that can run as high as 20% of the replacement value of the structure.
Many homeowners don't realize this coverage doesn't include outdoor structures, such as that fancy gazebo or in-ground pool. They must be insured separately.
Wildfires are covered under most policies with a standard deductible, and this coverage includes any and all structures on the property.
The insurance companies scam policy holders, one example would be using credit scores to determine your auto & homeowners insurance premium rates, this isn't fair due to people having their credit scores tank due to the economy, losing jobs, medical bills etc...
I live in a 2200 sq' starter home that I purchased in 2007 from the builder that was also my employer so I actually know that it cost my employer about $76,000 to build my house, excluding the cost of the lot.
The insurance companies that recently gave me a quote had replacement costs to rebuild my home between $225,000 & $250,000 and they are still building new homes in my community with the same finishes and square footage at a price of about $125,000 with the lot included in the price.
The insurance companies use these outrageous replacement cost calculators to bump up your premium and deductibles.
Also you need to be proactive when it comes to renewing your homeowners policy, check rates with several companies. And unlike what was stated in this article, it takes more than an hour to research the different insurance companies and to get several quotes.
And be aware that there are insurance company representatives that will lie to you just to get your business. Also be aware that hurricane coverage doesn't begin until after 30 days, so I wouldn't change to another homeowners insurance company 30 days prior to the beginning of hurricane season.
Also contact your local fire department to determine your fire rating classification and ask if they are scheduled for an upcoming ISO review for a possibility lower fire rating classification.
Most people I know in Florida do not carry hurricane of flood insurance, unless they have a mortgage and the bank makes them. Why? Because it is too expensive!
Example, $10,000. a year and huge deductible. After five years or so you are better off to self insure which means Rolling the dice and praying you don't get a direct hit.
Before I got my home owners policy, I asked a lot of what if questions. Like what is covered in fire, wind or storm damage to my home. Also it is a cluster community, so I asked what if my neighbors house starts the fire. In Atl. Ga, they build houses way to close together. In the end I got exta coverage, that I could afford with All State.
Renters, please get renters ins. Even if it is only 5k-10k that you can afford. Most apartments are not built to code and it only takes a fire minutes to spread to another unit. The complex has insurance to replace their building, but not your stuff. Think about how hard it would be to replace your belonging with 10k, or 5k, or with nothing.
In 2011, my apartment was broken into. They broke the slider lock without breaking the glass. The locked protection bar was easily bypassed; make sure you wedge a stick, steel rod, or door stop, between the track, to keep the door from openning. I had All State for renters ins and they were quick to settle the claim. They asked for each item that was stolen, including year make and model. They depreciated each item before payout , never mind what it cost to replace it. I was glad I had purchased ins because it would take a long time to replace the stuff they stole. Six months later during policy renewal, All State more than doubled my policy taken it from $32 a month to $76 a month. I could not afford that so I canceled the policy and got a 5k policy from another company. Also my auto ins went up because I did not have my multi policy discount anymore. Most people find out the hard way that their ins is not there to pay claims, only to collect the premium. Do not forget what the people who had damage to their homes from Katrina, had to go through trying to get the ins companies to pay for the damage.
Extra coverage is always a must and should never be under estimated when it comes to insuring your home. You insure your car with the best coverage, so why not your home. People who rent should get renter's insurance. This protection is of great value for the reason that landlords might not have contents listed and if something happens and if they have contents listed, you probably aren't ever going tosee that check. When you rent always get a copy of the landlord's insurance on that place. If they say no, then just ask for the name and address of who they have insurance with. If they refuse this information to you, then you might not want to rent this place, because more than likely they do not have insurance on it. The same is true if you lease a store front building.
It may cost a little more to have indemities added to insurance, but in the long run it is worth it. From experience, I had a double wide mobile home once. The people at Foremost told me that if the house was destroyed, under my policy I would replace with a new doublewide. I also carried hurricane insurance. I lived on a hill, so I didn't need the extra flood insurance, and all other natural diasters was already covered under my umbrella policy. If you do not know if you are in a flood zone, check with your county (parish) tax assessor's office. They will have that information and can make you a copy of your elevation for your insurance company.
TO DOLLY 580---OH YEAH WE HAD TO PAY--- WE ALSO HAD TO CHECK THE WIRING ON THE CEILING LIGHTS--AND REPLACE IT AND THE SOAKED INSULATION IN THE CRAWL SPACE/ATTIC NOT JUST
REPAINT---GOOD LESSON -ASK QUESTIONS & READ THE FINE PRINT NO MATTER HOW ANTSY THE AGENT IS GETTING
SEVERAL YEARS AGO THERE WAS A SEVERE ICE STORM IN OUR AREA---WE HAD HOME OWNERS
INSURANCE FROM THE DAY WE BOUGHT THE HOUSE---THE ICE RIPPED UP THE ROOF AND ALL OF OUR CEILINGS WERE RUINED----INSURANCE SAID IT WAS AN ACT OF GOD---TRUE A LOT OF PEOPLE WERE OPERATING SCAMS TO GET MONEY--THE EVENT COVERED A HUGE AREA, BUT WE WEREN'T--WE HAD NEVER MADE A CLAIM PRIOR---WE CHANGED COMPANIES AND ASKED WHAT WAS COVERED