The pandemic and the presidential election dominated the news in 2020, but natural disasters also loomed large across the U.S. There were 22 extreme weather events last year, according to the National Oceanic and Atmospheric Administration, including the wildfires that spread across California, the tropical storms and hurricanes that pummeled the Atlantic coast, and a handful of tornadoes. Those disasters left more than $95 billion in damages in their wake, with homeowners and businesses large and small bearing the brunt of the costs. // Many homeowners have misconceptions about what their home insurance policy will cover, leaving them with unexpected expenses when disaster strikes. For example, when Policygenius.com, an insurance comparison website, surveyed homeowners last year, more than 53% of them said they believed that flood damage is covered by a standard homeowners insurance policy. (It’s not.) The survey also found that more than 80% of homeowners mistakenly thought that earthquake damage was covered, too. If you’re at risk for either of those events—or any natural disaster—here’s what you need to know to make sure you’re covered.
FLOODS AND HURRICANES
Certain kinds of water damage are covered by standard homeowners insurance. For example, if your water heater springs a leak or a water pipe inside your house bursts, your home insurance will probably cover the damages after you meet your deductible. (For tips on how to detect leaks early, see page 52.) But if it’s any other type of water event, such as flooding from heavy rainfall or a hurricane, you’re on the hook for the costs to repair the damages.
Last fall, heavy rainfall led to flooding in the basement of Chynna Keys’s home in Fort Washington, Md. Keys had to deal with water in her basement a couple of years ago, too, but she thought it had been caused by a faulty sump pump, which she replaced. This time, however, the rainfall flooded not only the main part of her basement but also a back room, damaging the carpet. Keys called her insurance agent at Erie Insurance, her home insurance provider, only to learn that she was on her own because she didn’t have a separate flood insurance policy. So far, she has paid $5,700 to fix the damages.
Homeowners can purchase flood insurance from the federal government or a private insurer. The government’s National Flood Insurance Program provides up to $250,000 of dwelling coverage and up to $100,000 of contents coverage. The policy has two separate deductibles (one for dwelling, one for contents) that you must pay before coverage kicks in. Deductibles start at $1,000 but can go as high as $10,000 for single-family homes. If you think this coverage is too low, you can try the private insurance route, which typically has higher coverage limits and will reimburse you for the full replacement cost of your home’s contents. (The NFIP only covers the items’ actual cash value, which includes depreciation.)
The cost of an NFIP policy varies, depending on risk, but averages about $700 a year. A policy from a private insurer averages $1,050 a year, according to Policygenius. Premiums will vary depending on where you live. For example, if you live close to the beach, premiums for a private policy will probably be higher than average.
In some areas, a private policy may cost less than one from the NFIP. A 2017 study from Milliman, a risk management and benefits firm, found that a large number of homeowners in Texas, Florida and Louisiana could buy a policy from a private insurer for less than they’d pay the NFIP. An insurance agent can help you compare options. Search for one near you at www.trustedchoice.com.
If you live in a hurricane-prone area, floodwaters aren’t your only concern. While damages from wind and wind-driven rain are covered by a standard homeowners policy, many charge separate wind deductibles, which means higher out-of-pocket costs for you. The deductibles are usually based on a percentage of your coverage rather than a flat dollar amount.
“It has been a gradual shift to different deductibles being applied to wind damage—particularly in the 19 states that are most prone to having hurricanes,” says Dan Karr, founder and CEO of ValChoice, an insurance industry watchdog. “So you could still have a $1,000 deductible on your home, but your wind deductible might be 5% to 10% of your dwelling coverage.”
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