Before a hurricane threatens our area, find out what storm
damages your home insurance covers and whether you need to add more
protection. If a hurricane destroyed your home, would your
insurance cover the cost to rebuild?
Don’t wait until a storm is threatening offshore to find
If you’re like most people, you probably don’t have
more than a vague idea about what your policy covers and what it
doesn’t. The danger is that you may think you’re
adequately protected when you are not. By some estimates, close to
two-thirds of U.S. homes are underinsured.
How does it happen?
Sometimes people make home improvements without telling their
insurance agents. Or, policy limits simply haven’t kept up
with rapidly escalating building costs. Sometimes policies have
special exclusions or restrictions that homeowners don’t
realize are there.
Checking up on what your policy covers will be easier in the
future thanks to a new state law that will require companies to
print a coverage checklist on the front of every homeowner’s
policy. Among other things, the list will have to show in large
type the coverage limits and the dollar amount of the hurricane
deductible: ($4,000 makes a bigger impression than 2 percent). More
importantly, it will detail how much the policyholder would receive
for living expenses and for how long if the home is destroyed.
Your overall insurance limit is the first thing to check since
that could come into play with a destructive storm. Ideally, you
want a limit high enough to cover the cost of rebuilding your house
on the same site, not including the value of the land. If you have
a mortgage on your home, your lender may require you to carry
enough insurance to replace your home, but cannot require more than
that even if your mortgage is for a higher amount.
If your limit looks too low, ask your insurance agent to
evaluate your situation. The market value of your house might be
twice the limit, but that doesn’t necessarily mean the limit
is wrong. With property values rising rapidly, it can be very
difficult to separate the replacement cost of the building from the
cost of the land.
If you disagree with the agent’s estimation of replacement
value, you can get a second opinion by paying $19.95 for an online
report from a valuation site such as
www.insuretovalue.net. If you have an expensive
home with many custom features, it may be worthwhile to pay for a
You’ll also want to review your policy’s limitations
and exclusions. Peripheral structures such as pool sheds, detached
garages, pool screens, and fences may not be covered at all.
Your policy also may limit or exclude coverage for items such as
boats, cars, aircraft, cash, guns, silverware, jewelry, furs,
antiques, electronics, business equipment, and records. If you want
adequate coverage for those items, you’ll probably need to
buy extra coverage or a separate policy.
The biggest exclusion in homeowners’ policies is flood
damage, which has been a huge issue for homeowners in Louisiana and
Mississippi whose homes were damaged or destroyed by Hurricane
Katrina. Even if wind drives the waves, homeowners’ policies
won’t cover flood damage.
If you live in a flood hazard zone, your mortgage lender will
require flood insurance. If you own your home free and clear, or
you live outside the hazard zone, flood coverage is optional, but
flooding is still a real risk. Many homes flooded during Katrina
were not in hazard zones.
Something called “law and ordinance” coverage is
optional for everyone, but without it, your policy won’t pay
the extra cost of rebuilding to meet current building codes.
A safer way to save money is to increase your deductible,
particularly for non-hurricane coverage. If you’re still at
$500, raising it to $1,000 is a good idea. If you’ve got an
expensive house, you might want to opt for $2,000 or higher. The
hurricane deductible - most likely 2 percent of the insured value -
can also can be increased if you could afford to pay more out of
pocket for storm damage.
The best way to prepare for higher deductibles is to maintain an
emergency reserve in a bank or credit union account or a
money-market fund. Savings bonds less than a year old can also
function as an emergency fund since they can be cashed at any