Your life can change in the blink of an eye.
Having the right amount and type of insurance for your car, home, boat, and other high-value possessions will ensure that you will have the money you need to recover after disaster strikes.
Start with A Homeowners Guide to Natural Disasters for an introduction to basic mitigation and policy benefits, limitations, and opportunities to save with credits and discounts.
Then schedule a checkup with your insurance company or agent to ask critical questions like:
Different types of insurance policies are available to cover various weather or geophysical perils, such as earthquakes. The most appropriate insurance product for your needs depends primarily on your type of dwelling.
Homeowners: If you own a home, there are two available policy forms: homeowners and dwelling forms. The main difference between these two types of forms is that a homeowners form combines property coverage with liability coverage, while the dwelling form only covers property losses. Additionally, a dwelling form is more commonly used for a dwelling that an insured person owns but does not live in or only lives in for part of the year. Both types of policy forms have various peril coverage options available for the dwelling and its contents.
Manufactured homeowners: There are policy forms specifically designed to insure manufactured homes. This type of policy covers both the dwelling and its contents and provides liability protection.
Condo owners: There are policy forms specifically designed to cover condominiums. This type of policy typically covers contents, such as your personal property and liability. A small amount of dwelling coverage is provided to cover the portions of the condominium that you are responsible for, as defined by the governing rules of the condominium association; this may include condominium common areas. You can purchase additional dwelling coverage if the protection included in the package is insufficient.
Renters: There are renter’s insurance policy forms specifically designed for you if you are renting and do not own your residence. These forms provide coverage for your contents and liability.
Farm homeowners: Farm owner’s policy forms are specifically designed to cover farms or ranches which may not qualify for standard homeowners insurance. This policy may be the most appropriate form to cover property losses to your home and other structures, such as barns and silos, from the damage of tornadoes, hail, and other perils. Farm owner’s policies also cover personal and commercial exposure of farms, along with liability coverage.
Two exceptions worth noting
Earthquake and flood policies typically need to be purchased separately or as additional endorsements to your standard policy, regardless of your dwelling type. The limits of these policies can match the homeowner’s or renter’s policy, or they can be set as separate limits.
Generally, insurance may be purchased from property casualty insurance companies through the voluntary market, meaning that the insurance companies voluntarily provide coverage to customers who meet the underwriting requirements. Availability and types of coverage may vary across states and companies, so consumers should research property coverage for specific perils in their area.
There are four main distribution systems employed by property casualty insurance companies in the U.S.:
Involuntary market mechanisms (sometimes referred to as shared markets) provide coverage for entities that do not qualify for coverage in the voluntary market. There are many reasons why coverage may not be available through the voluntary market in a particular place. For example, living in a high-risk area, such as a designated wildfire zone, near a coastline, or in an area affected by a recent catastrophic event may lead to reduced availability of coverage.
The following kinds of property insurance market mechanisms exist in certain areas:
Market conditions in some states have made it difficult for voluntary insurers to provide affordable coverage. Under those circumstances, coverage may be available through a FAIR plan. If you find that you are unable to obtain insurance through the voluntary market, your insurance agent may help you find coverage through the involuntary market, or you may be able to contact the plans directly. Because these entities vary greatly by locality, your state insurance department is likely the best source of information on how to obtain coverage through the involuntary market in your state.
Homeowners insurance protects your home and everything in it from accidental and unexpected incidents. If something catastrophic occurs, you will need to provide a list of everything that was in the house, and in some cases, even photographic evidence of valuable possessions.
Here’s how to create a home inventory that will make future insurance claims run smoothly:
For more expensive items, store receipts electronically in a folder backed up to the cloud, on a flash drive, or in a written physical record along with other essential documents in a sealed waterproof bag.
If you are keeping a physical record, keep a copy in your “go bag” in case you have to evacuate.
Take advantage of all product warranties by registering your new appliances and products. That way you can get helpful information about the product for an insurance claim.
Keep the name, telephone number, email, and web address of your insurance agent and/or company in a safe place, including on your computer or on your phone.
Contact your home insurance company or agent and request a policy review. Use the insurance checkup checklist to make sure you have the right financial resources to rebuild, recover, and bounce back from any disaster.
Update your home inventory regularly and read your insurance policy carefully to understand what is and isn’t covered (deductibles, general and specific limits, flood coverage, etc.).
If you must evacuate the area, notify your insurance company and verify what your insurance policy will cover for temporary lodging.
For more information about insurance, check out A Homeowner’s Insurance Guide to Natural Disasters for an introduction to mitigation and policy benefits, limitations, and ways to save with credits and discounts.
FLASH and The Actuarial Foundation. If Disaster Strikes, Will You Be Covered? A Homeowner’s Insurance Guide to Natural Disasters.
While adequate insurance coverage is essential to disaster recovery, premiums can present a significant expense for homeowners. Premiums may increase over time with inflation, increased costs of construction, or other factors; however, it is possible to reduce potential costs.
In addition to the premium, you’ll need to account for the deductible — the amount of your claim that you pay before any payment is made by your insurance company. The larger your deductible is, the lower your premium will be. However, the larger the deductible, the more out-of-pocket payment you will be responsible for when a loss occurs.
Dollar deductibles: A dollar deductible is the dollar value the insured must pay before the insurance company will pay the remainder of the claim. For example, with a $500 standard deductible, the policyholder must pay the first $500 out of pocket. Some insurers offer policies with higher dollar deductibles for hurricane and earthquake damage. The higher the deductible for a given policy, the lower the premium. This is because the insured is bearing more of the risk.
Percentage deductibles: Percentage deductibles are calculated based on the home’s insured value. For example, if a house is insured for $100,000 and has a 2% deductible, the first $2,000 (or 2% of the insurance value of $100,000) of a claim must be paid by the policyholder. In many states, policyholders have the option of paying a higher premium if they prefer a traditional dollar deductible instead of a percentage deductible or if they prefer to have a lower percentage deductible. Percentage deductibles are sometimes mandatory. It is important to remember that the dollar value of a percentage deductible will change as the insured value changes.
Here are some options for saving money on your homeowners insurance.
A policy may have different types and amounts of deductibles based on the peril. Many insurers offer homeowners insurance policies with percentage deductibles for windstorm damage instead of the traditional dollar value deductibles used for other types of claims, such as fire and theft.
One of the more common percentage deductibles is the hurricane percentage deductible that applies to damage solely from hurricanes. For example, a policyholder may have a $1,000 deductible for fire losses, but a 2% deductible for hurricane losses, making the hurricane percentage deductible a significant part of the policy. An earthquake policy with an additional third deductible could differ from all other deductibles for the insured property, as well.
Premium discounts vary widely by state and company. Secure price quotes from more than one source before choosing a policy, and use the list below to request potential discounts. This list is not exhaustive, so you may qualify for additional discounts.
How do you make sure that you can insure your home against disasters like hurricanes and floods? The location of a property can be a primary factor of insurance availability. Homes located in areas with greater exposure to losses due to a particular peril pay a higher cost for coverage than areas less exposed to that peril.
Insurance premiums for homes in the Midwest may reflect a higher cost due to tornado coverage. It may be difficult to find available or affordable coverage in the voluntary market for homes with greater exposure to wildfires, such as those in designated brush zones in California. It is essential to evaluate the insurability of a property before purchasing a new home.
Another factor that affects the availability of insurance is a pending event. For example, if a hurricane or a wildfire is approaching, insurance companies will often issue a temporary prohibition on issuing coverage, and no new coverage can be written in the area threatened by the peril until the threat passes.
Consider possible perils and how they might affect the availability of insurance when you’re shopping for a home or adding coverage to your current property.
Homeowners who live on or near major faults are vulnerable to earthquakes, and the soil type in certain areas may be more susceptible to earthquake damage. As a result, the closer a home is to a fault line, or if it sits on certain susceptible soil types, the more limited insurance options may be because of the risk of earthquake loss.
Recent earthquake activity can also determine earthquake insurance availability. As more earthquakes occur, insurance companies are likely to experience significant claims from earthquakes and may become financially distressed. These companies may find it difficult to provide coverage to the same volume of policyholders which can cause an overall availability problem. In certain areas, state associations are established to ensure insurance availability in constricted markets. These publicly run entities provide insurance coverage when availability and affordability problems arise.
Homes in coastal areas of the U.S. are more exposed to hurricanes than homes further inland. As a result, homeowners in these areas may have fewer choices for hurricane insurance. Frequent storm activity can constrict hurricane insurance availability and markets. As with earthquakes, publicly run entities typically fill gaps in the market and may provide insurance coverage when availability and affordability problems occur.
Homeowners can encounter insurance availability problems due to the location of their home as described above. However, if a home has unusually hazardous features, insurance companies may be unwilling to provide coverage regardless of location.
Some of the features considered hazardous include inferior construction, a low-performing roof shape or roof covering, an unbolted frame, an unsecured chimney and/or water heater, or structurally weak features such as awnings or other exterior ornamentation. Additionally, older homes that do not meet current building codes and poorly maintained homes may be difficult to insure.
Homeowners can ensure the insurability of their home by keeping the property current to local and modern model building codes, by performing regular home maintenance, and by implementing loss mitigation measures. Homeowners may also evaluate their insurance options by staying informed of changes in the local insurance marketplace.
Guaranteeing you’re adequately insured and protected before a disaster is critical. You can start by checking your coverage options, property definitions, and the extent of coverage available. Options will vary by state, company, and product.
Here’s everything you need to know about your choices of home insurance for disasters.
Insurance companies define four coverage categories for your home:
A peril, as referred to in an insurance policy, is a cause of damage that results in an insured loss of property, such as fire or theft. Coverage can be provided on an “all perils” (open perils) basis or a “named perils” basis. Named perils policies list what is covered by the policy and are generally more restrictive. All perils policies list what is excluded from coverage. A dwelling policy usually provides coverage for both the dwelling and its contents on a named perils basis. A homeowners policy usually provides coverage for the dwelling on an all perils basis and coverage for the contents on a named perils basis.
A package policy provides coverage for multiple, but usually not all, perils. A homeowners policy is a package policy that provides coverage for fire, lightning, extended coverages, and personal liability. Extended coverage includes coverage for windstorm, hail, explosion, riot, civil commotion, aircraft, vehicles, smoke, vandalism, malicious mischief, theft, and breakage of glass. Some policies, such as earthquake or flood policies, provide coverage for specific perils that are often excluded in package policies. Fire and water damage from an earthquake may be covered by a standard homeowners policy.
It is important to consider what additional perils you may face and verify what is covered by your specific policy. Consult with your insurance company about perils you may face and what perils are covered by your policy.
Depending on the type of policy, dwelling coverage options could include replacement cost coverage, actual cash value, special payment, functional replacement cost or market value coverage, or stated value.
The settlement of a loss will vary depending on the coverage you select when you purchase your policy.
Depending on the type of policy, personal property coverage options could be replacement cost coverage or actual cash coverage, as explained above.
Insurance-to-value ratio is the relationship of the amount of insurance purchased to the replacement value of the property. It is important to have an accurate assessment of the replacement cost value of your home. If you don’t and then experience a loss, the cost to replace your home may be more than your insurance policy will provide and you would be responsible for covering the difference. Major catastrophes, such as earthquakes, hurricanes, and wildfires, often can create a demand surge for materials and labor, resulting in increased costs to replace damaged property. Consider the effect of such surges when establishing the appropriate replacement cost for your property.
Most property policies have a coinsurance penalty, which requires that your property be insured to at least 80% of the replacement cost or loss payments will be reduced by a proportion of the insured value to 80% of replacement value.
It is also important to realize that other coverage limits within your policy are set as a percentage of the dwelling coverage amount. For example, the limit of coverage for your personal property will usually be at 50% of the dwelling limit. Additional coverage is available via endorsement and is typically increased if you purchase replacement cost coverage for your contents.
In order to qualify for replacement cost coverage, you will most likely be required to insure your property to at least 80% of the replacement cost. If this requirement is met and you have a total loss, your insurance policy will cover the total cost of replacing your home. If the property is not insured to at least the 80% value, then the payment for partial losses may be reduced. For a total loss to be paid, the property should be insured at 100% of the replacement cost.
Many insurance companies offer an endorsement that provides full coverage to replace your property in the event of a total loss. Usually, the company requires that the property be insured to at least 100% of the replacement cost in order to qualify for this additional coverage. As long as this requirement is met, if you have a total loss and it costs more to replace than your limit (due to a misestimate or demand surge), the coverage under your insurance policy will be increased accordingly. The amount of the increase depends on the endorsement purchased and can range from 25% to 100%.
Additional coverage may be included in your policy. One example is a building code upgrade, which provides 10% coverage for upgrades required by the community to meet building codes when a home is being repaired or rebuilt as a result of a covered loss. Optional coverage for perils, such as earthquake insurance, may be available to purchase to supplement your policy.
FLASH and The Actuarial Foundation. If Disaster Strikes, Will You Be Covered? A Homeowner’s Insurance Guide to Natural Disasters.