Owners of primary residences and second homes may not clearly understand their homeowner’s insurance policy as it relates to damage from a natural disaster.
We asked two experts for insurance and natural disaster advice: Bob Hertel, director of product development for Acuity Insurance in Sheboygan Falls Town, Wis., and Darren Wood, president of Recoop Disaster Insurance in Des Moines. Both responded by email and their responses were edited.
What are some common natural disasters and the average costs for homes of those disasters?
Hertel: Common natural disasters are different depending on where you live. Average claim costs vary widely based on the type of disaster. Based on Acuity’s claims data, the average cost of a wind or hail claim is generally under $15,000. However, fire claims are significantly higher, often running into the hundreds of thousands of dollars.
Tips for homeowners living in fire-prone areas
wood: The average exposure for severe natural disaster events such as hurricanes, wildfires, tornadoes, earthquakes, gas explosions, winter storms and dust storms is $54,000.
Are most of these issues covered by homeowner’s insurance?
Hertel: Damage caused by wind, hail, and fire is generally covered under a standard homeowner’s insurance policy, including losses from wildfires and tornadoes. Losses caused by floods or ground movements, such as earthquakes or landslides, are not covered by a standard homeowner’s policy. Special endorsements can be added to a standard homeowner’s policy to protect against earthquakes or landslides. Your insurance agent may be able to offer you flood insurance through the National Flood Insurance Program.
wood: Yes, but there are gaps in coverage. For example, certain disasters like earthquakes and hurricanes aren’t usually included in standard homeowner’s policies, so you may be prepared to cover those damages yourself. Other common pitfalls include things like the depreciation of your roof, high deductibles for disasters like hurricanes, and changes in your home’s replacement value versus its market value that create costs that consumers must cover out of pocket. theirs. Plus, with typical insurance, people can be left waiting up to 30 days before they’re paid after filing a claim. This can feel like an eternity if your home is badly damaged or uninhabitable.
What is the difference between market value, extended replacement and guaranteed home owner insurance coverage?
Hertel: Since the cost of construction resources and labor have recently increased dramatically, an important coverage to consider is guaranteed replacement cost, which ensures that you are not left waiting for the difference between the limit of your home owners insurance policy and the actual cost to rebuild.
Here is an example of the importance of guaranteed replacement cost coverage. Assume a home is insured with an occupancy limit of $550,000. This house was later destroyed by a tornado. After the tornado, building supplies and construction labor are in short supply, causing rebuilding costs to reach $1 million to rebuild the same home. With guaranteed replacement cost coverage, the insurance provider would pay $1 million to rebuild the home; without guaranteed replacement cost coverage, the homeowner would have to pay all or part of the additional $450,000 to rebuild.
wood: Most extended replacement policies are limited up to 125 percent based on the insured value of a home. The average homeowner could be on the hook for 2 to 20 percent of their home’s value because these policies are based on market value, not replacement cost, which we know is quite high these days.
Is it typical for insurance to cover relocation temporarily if the home needs major repairs?
Hertel: Yes. A standard homeowner’s policy includes coverage for living expenses if your primary home is uninhabitable due to a covered natural disaster. Depending on the damage, this may include a short-term hotel stay or long-term housing while your home is restored or even rebuilt.
Is an umbrella insurance policy useful in the event of a natural disaster?
Hertel: No, an umbrella policy does not provide additional protection against natural disasters. An umbrella policy provides excess liability insurance for injury or property damage you cause to others.
In the case of a natural disaster, property insurance—not liability insurance—is needed to cover the damage.
Any other tips for homeowners about natural disasters and insurance?
Hertel: It is important to make sure you understand what natural disasters are covered by your homeowner’s policy. If you live in an area prone to floods or earthquakes, you may need additional insurance protection. It’s also important to check your policy limits, which set the maximum amount your insurance will pay out. Your insurance agent can help you make sure you have the right coverage and limits.
wood: Recoop Disaster Insurance is a multi-peril disaster insurance coverage that pays a large cash benefit (up to $25,000) after a covered natural disaster, including hurricane (storm), wildfire, tornado, earthquake, gas explosion , winter storm. or dust storm. Your premium is based on the amount of coverage purchased and the level of risk for your area. Recoop Disaster Insurance is not designed to replace a homeowner’s or renters policy; it’s designed to work with and exists to cover the gaps left by most homeowner’s insurance policies in the wake of a natural disaster. After a disaster, you go directly with Recoop to answer a few questions, send photos of your home for proof of loss, and then review the claim. If everything is in order, the payment comes within 24 to 48 hours of the approval of the request.