If your home is destroyed or damaged by a hurricane, wildfire or some other disaster, will your insurance cover your losses? What about a flood in your basement from melting snow?
Whether you own or rent, it’s a good idea to review your insurance policies every year to make sure your needs are still being met.
“Most people think that a basic homeowners policy will cover them in the event of a disaster,” said Robert Rusbuldt, president and CEO of Independent Insurance Agents & Brokers of America. [A] startling number of homeowners (and renters) have not taken some of the most basic steps to adequately prepare for a disaster such as a hurricane, flood or fire.”
For example, 80 percent of Hurricane Harvey storm victims in Texas don’t have flood insurance and face substantial repairs to their homes that must be paid for out of pocket. Many of these victims live in flood-prone Houston but are outside of the city’s Special Flood Hazard area where flood insurance is mandatory.
However, it’s not just a weather event of historic proportion that can damage a home and financially ruin those who are underinsured. A tree falling through a roof or faulty wiring in a coffeemaker that sparks a fire can be devastating if there isn’t enough insurance to cover rebuilding.
To ensure you are protected, it’s important to understand what your insurance covers before you have a need. Ask yourself these questions when reviewing your policy:
1. Does my policy provide enough coverage if I needed it today?
If you own your home, can your policy replace it exactly as is? If you have made improvements like finishing your basement, you may need to update your policy. You should also make sure you understand your coverage. A cash value policy, often the default coverage in standard policies, takes depreciation of your home and belongings into consideration. The older these are, the less you get reimbursed. A replacement cost policy is more expensive up front, but takes into account what items cost new today.
2. Do I need to increase or decrease my deductible?
The higher your deductible, the lower your premium, but that deductible must be paid before you are reimbursed for your losses. If you’ve bought expensive items since you purchased your policy, such as camera equipment for your child’s photography hobby, you may want to increase your deductible. If your child is now grown, moved out and taken this equipment with them, you may be able to lower it.
3. Does my policy provide enough for living expenses?
If you have to temporarily leave your home, a standard homeowners policy will generally provide some limited coverage for lodging and meals. It’s important to know how much, as many people do not have the savings to sustain living away from their homes for more than a few weeks.
4. Do I have enough liability coverage?
If your neighbor slips and breaks a leg on your property or is nipped by your dog, do you have enough liability coverage to take care of their expenses? Some people purchase an additional umbrella policy, which provides liability above the limits of a homeowners policy and includes automobile, boat and other claims that may be excluded under your homeowners liability provision.
5. Do I need renters insurance?
Your landlord will have insurance on the building, but you need insurance for your possessions. Review your policy to make sure it’s still providing sufficient coverage.
6. Do I need insurance against floods, earthquakes or other natural disasters?
Flooding is not covered in a standard homeowners policy and unless flood insurance is a stipulation of your mortgage, you are not required to carry it. Homeowners’ policies generally do not cover earthquake damage unless it results in a fire, so purchasing earthquake insurance is also a personal decision. Depending on where you live, adding insurance for these events may make sense.
If you want to update your insurance, it’s a good idea to shop around. Not all policies are equal and lower premiums are not always a reason to change. What’s important is that you have enough insurance when you need it. The National Association of Insurance Commissioners provides consumer guides on home, auto and other types of insurance if you have questions.
[Janet Lubman Rathner]