Hurricanes and Homeowners Insurance

Hurricanes and Homeowners Insurance

There is no doubt that hurricanes can cause immense damage to homes and businesses but sometimes picking up the pieces in the aftermath can be just as harrowing as escaping the storm itself. Understanding your insurance policy and what it covers is crucial to your financial recovery. There are also some pitfalls for many home and business owners that can be avoided with a little bit of knowledge.

Before a storm ever hits, you should know what exactly you are covered for and what you are not. Most property policies offer hurricane coverage while some exclude them, but even with coverage not all policies are created equal. If you live and work along the East coast, you probably have heard the term “Hurricane Deductible,” but may not have given it much thought. Most consumers are more concerned with the cost of the policy rather than what it actually covers and how. With insurance, you should scrutinize just what it is you are paying for like you would if you were buying a new car. After all, an insurance policy like a new car has many options. A qualified insurance Agent or Broker should explain to you what you are purchasing and what options are available to you.

Understanding your deductibles:

First, let’s take a look at Hurricane Deductibles. The vast majority of insurance policies from auto to home and everything in between carries deductibles. With homeowners and business owners policies, there is usually a flat deductible that applies to covered losses you sustain. The deductible is the portion of the loss that you are responsible for paying. Some types of losses, however, carry a separate deductible. You might look at your policy and see “Windstorm Deductible,” “Hurricane Deductible” or “Wind/Hail Deductible,” and an amount or percentage cited next to it.

A “Windstorm Deductible” will apply to any wind damage you sustain, whether a passing thunderstorm or a windy day, hurricane or tornado. Similarly a “Wind/Hail” deductible applies the same way with the addition of hail damage falling under this specified deductible. A Hurricane Deductible applies generally to storms issued a name by the National Weather Service; however, policies vary as to what category the storm must be in order for the deductible provision to be triggered. Under some policies it kicks in as a Category 1, others a Category 2 and still others just for being a named storm. The details of how the deductible applies can be found in the pages of the policy, usually a specific Endorsement, that spells out exactly when this deductible is triggered. Now that you have an idea what the deductible terminology means, understanding how much it will cost you is the next step.

If there is a dollar amount next to the specified deductible, then you clearly know what portion of the damage you would be responsible for before the policy will pay a dime. If you have a percentage next to the specified deductible you might wonder what exactly does the percentage cover. Many people think that the 5% they see on their Declaration page means they will pay for 5% of the overall claim, but that is not how it works. The 5% applies to the building coverage amount. In other words, if your home or building owned by your business is insured for $200,000 and you have a 5% deductible, then your deductible dollar amount is $10,000.

Utilizing the example above, if your house had roof and siding damage and a few broken windows and it was estimated to cost $15,000 to repair it, then you would have to pay $10,000 and the insurance company would only pay $5,000. If the roof was blown off, all the windows blown out, the siding gone and the estimated repair was $75,000, you would still be responsible for the $10,000 deductible and the insurance carrier would pay the balance of $65,000.

Understanding your insurance limits and how to determine them:

How much your home is covered for should not be an arbitrary number. Many believe the value of their home as it relates to their insurance is based upon the mortgage amount or the market value of your property; however, it has absolutely nothing to do with either figure. Instead it is based upon a formulation of square footage, build quality and ultimately how much it would cost to rebuild your home or building if it were completely destroyed. It is important to have this accurately assessed when insuring your home or building because there is no benefit to being over insured. Conversely, being under insured can carry stiff penalties if you are more than 10 or 20% under insured which would greatly effect the amount you could collect on your claim. Some insurance carriers will conduct a property inspection to ensure you are properly insured, but not all will. Often if you are over insured, they don’t make much of an effort to tell you. If you have an insurance agent or broker you should make it a point to discuss your coverage and confirm you are adequately covered for your property.

Replacement Cost Value vs. Actual Cash Value:

Knowing the difference between Replacement Cost (RC) and Actual Cash Value (ACV) coverage is critical for every property owner. While Actual Cash Value (ACV) might tempt you with its lower premiums, there is a reason it costs so much less. While Replacement Cost will provide coverage for the rebuilding of your property up to the insured amount, ACV Coverage will take depreciation for every bit that is insured. It may cost $18,000 to replace your storm damaged roof, but because it is fifteen years old and a few shingles were curled, they might only offer you $9,000 to replace it. Add in your hurricane deductible and you are eating the entire cost. Whereas the same claim with Replacement Cost will offer the full cost to replace the roof less your deductible.

All perils coverage vs. named or basic perils coverage:

All perils coverage is a policy that covers everything unless it is specifically excluded. Some examples of things that are specifically excluded are extra- terrestrial invasion, nuclear war, flooding and earthquakes. The latter two coverages can usually be purchased as stand-alone policies, but in most instances a property owner would be covered. It is worth noting that in some areas that are prone to frequent hurricanes and windstorms these coverages may be excluded from some policies. You should read your policy or ask your agent or broker if you are covered for such events. Named or Basic Perils coverage only covers the perils or instances specifically named in the policy and excludes everything else.  A good article that goes over these different types of policies can be found here.

Tips to avoid pitfalls:

Documenting your claim: It is a good idea to make a video diary every now and then of your home or business and your possessions. When everything is blown away in a terrible storm, it is kind of difficult to remember how many lamps or DVDs you owned. A video walk through will help to jog your memory and provide evidence as to your lost possessions that need to be replaced. In addition to video, you should also have access to receipts for big ticket purchases. Some folks keep a photo log of receipts when they purchase appliances, televisions, etc. that they can access from their phone, cloud storage or thumb drive. These are also great ways to store your video diary so that you can easily retrieve them when needed. If you pay for any services after a storm, such as tree clean up or remediation, make sure you retain your receipts for any money you have paid out, to submit to the insurance carrier later. You should also photograph damage to your property, keep samples of damaged items if possible and keep good notes as to your interactions with your insurance carrier including claim numbers, policy numbers, phone numbers, contacts, dates of interactions, etc.

Public Adjusters: If you have a particularly large claim, you might consider retaining the services of a Public Adjuster. They work for you rather than the insurance company and will utilize their expertise to make sure you are paid appropriately for your claim. Often in areas of wide swaths of damage, insurance carriers rely upon “Outside Adjusters” who may not know their policies as well as an adjuster that works directly for the insurance carrier. They are also dealing with a heavy volume of claims and trying to get through them as quickly as possible which leaves room for many things to be over looked. Having a Public Adjuster will help you navigate the difficulties of such large claims and they will deal with the insurance carrier on your behalf. They do charge a fee, usually contingent upon the amount they recover for you, so make sure you understand the terms before signing one up.

Beware of Fly by Nighters: Sadly, there are some unscrupulous people who will exploit those most vulnerable, and victims of storm damage are no exception. Roofers, carpenters and various other construction people will drive in from out of state, promise you the moon and stars, take a substantial down payment for the work they are supposed to do for you and then just disappear. Others will stick around and do shoddy work just to make a quick buck, then also disappear. Although in times of disaster local contractors are often overwhelmed with work, it is still best to try and work with people from your area that have been around for some time. If not local contractors, then large corporations who have verifiable credentials and have been in business longer than the storm season should be a safer bet than the van that rolls into your driveway with the deal of a life time.

Flood Insurance: This is probably one of the most important things to understand. Homeowners insurance and most Business Insurance policies do NOT cover flood damage. Flood insurance is purchased as a separate coverage most of which is through the National Flood Insurance Program run by Federal Emergency Management Agency (FEMA). You might think that because you are covered for hurricanes that any flooding brought on by one is covered, Unfortunately, you would be incorrect. According to FEMA the definition of a Flood is as follows:

Flood.
A general and temporary condition of partial or complete inundation of 2 or more acres of normally dry land area or of 2 or more properties (at least 1 of which is the policyholder’s property) from:–Overflow of inland or tidal waters; or–Unusual and rapid accumulation or runoff of surface waters from any source; or–Mud flow; or Collapse or subsidence of land along the shore of a lake or similar body of water as a result of erosion or undermining caused by waves or currents of water exceeding anticipated cyclical levels that result in a flood as defined above.

Since insurance claims are based upon proximate cause, the likelihood of flood damage being covered by your regular property coverage is low. In the case that your roof was blown off by wind and as a result rain flooded into your home and caused damage, your property insurance would cover this because the Proximate Cause of the damage was wind. If a storm surge came through and flooded your home and caused your structure to collapse, that would only be covered by Flood Insurance because the proximate cause of the damage was tidal water. In another scenario, if your big picture window was broken by a tree limb and as a result wind driven rain came into your home causing water damage, your property insurance would cover it because the Proximate Cause was the tree limb breaking the window. If it rained for three days straight and two feet of water piled up and came into your home, only flood insurance would cover this because the proximate cause is the inundation of rain water over normally dry land.

The best thing you can do as you try and grapple with your two hundred page insurance policy is to consult a professional. Address your concerns about coverage before you need to use it. Agents and Brokers are licensed by their state to provide you with advice and consultations and owe a fiduciary responsibility to their clients. Do not be afraid to ask them questions, that is what they are there for. Most agents will be happy to explain your policy to you, but if they don’t want to go over your policy or answer your questions, you can find another Agent or Broker and still keep your policy. You pay for their service in your premiums, so do not hesitate to utilize it.

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