Your life can change in the blink of an eye.
Why do they matter?
Tornado safe rooms constructed following FEMA guidance or ICC 500-certified storm shelters are your best chance for survival when deadly hurricanes and tornadoes strike. They provide near-absolute life safety protection and can withstand extreme winds, even up to EF-4 or EF-5 level tornadoes.
Saving lives is the first and foremost purpose of safe rooms and shelters, but they can also make your home more valuable. According to FEMA analysis, a safe room can increase your home’s selling price by approximately 3.5%. As site-built and prefabricated safe rooms can cost as little as $3,000, tornado safe rooms and shelters are both lifesaving and moneywise.
What do I need to know?
There are six different types of tornado safe rooms and shelters.
Cast-in-Place Concrete
These rooms are built with removable forms and assembled onsite. Once the forms are placed, the rebar is set inside the formwork, then filled with concrete. The panels are removed after the concrete hardens.
The walls and ceilings are formed at once to create a strong, secure structure. When you add this type of shelter to an existing home, it is usually added to the exterior. The panels can be fitted with liners to create concrete exterior surfaces that look like siding, brick, or stone.
This room can be built virtually anywhere in a new house.
Insulating Concrete Forms (ICFs)
These rooms are created using foam blocks that contain steel reinforcement, fitted together, and then filled with concrete. The foam is a permanent part of the room and provides insulation to the building.
The ceiling is constructed with ICFs creating a continuous, steel-reinforced concrete structure. The forms can be used in new or existing construction.
Interior and exterior finish options include drywall, sheetrock, or siding nailed to the foam.
You can use ICFs to build a stand-alone safe room or an entire house.
Concrete Masonry
Concrete masonry safe rooms are common in new construction and can be built in one to two days. Individual concrete blocks are set in place; rebar is placed for strength and durability, and the cells are fully grouted.
Reinforcement comes out of the foundation, centered in grouted cells, and is carried to the top. Two rows of steel at the top of the wall hold the assembly together.
Bathrooms, walk-in closets, and basement storage rooms commonly serve as locations for these safe rooms in new construction. Exterior applications are often in a garage, detached garage, or storage building. This method offers a variety of texture and finish options.
Precast Concrete
This room is formed off-site and delivered to a house for installation. It can be used virtually anywhere in a new house. It is usually added to the exterior when added to an existing home.
The room is anchored using steel angles (L brackets) and bolts. Precast concrete can be used to build an entire house, and it can be finished in a variety of colors and textures using form liners. Exterior surfaces can be customized to look like siding, brick, or stone.
Prefabricated Steel
Prefabricated safe rooms must meet the ICC 500 standard and are available in smaller sizes than the safe rooms constructed using FEMA P-320. These rooms typically cost less than site-built safe rooms.
Installation costs for prefabricated safe rooms vary depending on the delivery distance as well as any necessary foundation or geotechnical work required to ensure installation on a sturdy foundation.
Prefabricated safe rooms can be ordered online or in-store at home improvement retailers.
Wood Frame and Steel Sheathing
The wood frame construction method uses wood framing covered by steel sheets and two layers of plywood. Hurricane ties are used to connect the roof to the studs, and another hurricane tie is added at the bottom with an anchor bolt to hold everything down. This type of safe room can be built in less than one day.
This room can be used as an addition to an existing home after verifying that the foundation is adequate. It can also be included in new construction in a variety of room options, such as a closet, storage space, or stand-alone garage structure.
Sheetrock, textures, and paint can be used to customize finishes and room colors. A wood frame safe room is most affordable when constructed as part of a new home, as the cost of additional materials is primarily the door assembly, steel, and extra plywood.
Where do I start?
Whether you build a safe room onsite or install a prefabricated shelter, consider the safety of its location. Safe rooms are designed to protect you and your family from extreme winds but cannot protect you from flooding. That is why they should never be built or placed in areas expected to flood during hurricanes, thunderstorms, or other severe weather events.
Contact your local building official, emergency management office, or floodplain management bureau to determine if your home is in a storm surge zone, high flood risk zone, or flood-prone area.
More Resources
Tornado-Strong.org – Checklists, fact sheets, and video library
FEMA P-361: Safe Rooms for Tornadoes and Hurricanes: Guidance for Community and Residential Safe Rooms
FEMA P-320: Taking Shelter from the Storm: Building or Installing a Safe Room for Your Home
ICC 500: Standard for the Design and Construction of Storm Shelters
Your home is vulnerable to damage during hurricanes, severe thunderstorms, or tornadoes when roof ridge vents, soffits, valleys, and other roof accessories fail. Securing the components of your roof during a storm can prevent water intrusion, the creation of windborne debris, and subsequent damage to your home’s roof and interior. Strengthen these parts of your roof today, so you are ready when high winds arrive.
Roof accessories refer to various products and materials used in conjunction with a roof system to enhance its functionality, appearance, or both. Some standard roof accessories include:
Have a licensed general or roofing contractor inspect your roof accessories to ensure they are anchored and secure.
FLASH. Resilient Design Guide: High-Wind Wood Frame Construction Edition
HurricaneStrong.org Soffit Checklist
Buyers Guide to Resilient Homes – Hurricane and Tornado Checklists
FEMA 499, Home Builder’s Guide to Coastal Construction Technical Fact Sheet Series
Technical Fact Sheet No. 7.5, Minimizing Water Intrusion through Roof Vents in High-Wind Regions
FEMA P-55, Coastal Construction Manual: Principles and Practices of Planning, Siting, Designing, Constructing, and Maintaining Residential Buildings in Coastal Areas
Many homes have accessory structures such as sheds, gazebos, pavilions, pergolas, and attached structures, including open carports. An unsecured accessory structure can be loosened, lifted, and moved by high winds during hurricanes, severe storms, or tornadoes, causing damage and creating dangerous conditions.
Engineering analysis after high-wind events often finds that damage begins when an attached or accessory structure fails, leading to even more significant damage to the home. For example, carports with poor connections to the house can be lifted by high winds and compromise the home’s roof. Insufficiently anchored structures such as sheds can break apart and become windborne debris that cracks windows and allows wind inside the house. Making sure these structures stay in place is critical to keep you safe and help prevent damage to the structure and your home.
Securing gazebos, pergolas, sheds, or other accessory structures against high wind requires several steps:
• Consult a licensed contractor or engineer in your area to have them determine if the anchorage and connections on your accessory or attached structures are sufficient to resist high-wind events.
FLASH. Resilient Design Guide: High Wind Wood Frame Construction Edition
FLASH. Resilient Design Guide: Concrete Construction Edition
Why do they matter?
Strong foundations help stabilize your house during earthquakes, floods, high winds, hurricanes, and tornadoes. They resist hydrostatic forces of water, carry wind forces down to the ground, and resist seismic forces as they pass underneath your home. A house with strong wall-to-foundation anchorage and connections will help prevent your home from collapsing, moving, sinking, sliding, tipping, or overturning during disasters.
A strong home foundation is one of the essential parts of your resilient home.
What do I need to know?
House design, budget, climate, location, soil conditions, and moisture are the main factors used when selecting a foundation type for your home. Three main types of foundations are commonly used for residential and single-family homes.
A house with a stem wall foundation has a wood-framed first floor attached to a raised concrete perimeter made from reinforced masonry (CMU or cinder blocks.) A pier-and-beam foundation is a system of vertical pillars or piers extended into the ground on footers. The piers support the joist system that holds up your home’s floor.
Retrofitting wood and raised foundations to strengthen their performance in disasters is cost-effective and relatively simple. Retrofitting poured concrete foundations may be more costly as it could require some drywall removal to create access.
Where do I start?
More Resources:
FLASH. Resilient Design Guide: High Wind Wood Frame Construction Edition
FLASH. Resilient Design Guide: Concrete Construction Edition
Nonprofit Federal Alliance for Safe Homes (FLASH) identifies tornado safety knowledge gaps and offers an education campaign to save lives and property.
(Tallahassee, FL) – As communities prepare to mark the 11th anniversary of the deadly April 27 “Tuscaloosa Super Outbreak,” a new survey reveals that Americans in high-risk states continue to struggle with understanding critical tornado weather warnings and life safety protection options.
The nonprofit Federal Alliance for Safe Homes (FLASH) annual tornado research effort, Is America #TornadoStrong? surveyed 500 residents in 12 tornado-prone states. The questions measured awareness and understanding of weather terminology, safe and unsafe protective actions, safe rooms, storm shelters, and affordability.
According to the 2022 survey, 42% percent of respondents mistook a tornado watch for a warning. In comparison, this is an improvement over 2021, when 50% confused the terminology. The terms matter because they prompt distinctly different protective actions. Staying aware (Tornado Watch) vs. taking shelter (Tornado Warning) can make a life-or-death difference.
Additionally, 48% of those surveyed are unaware that safe rooms are affordable and provide near-absolute life safety protection in most tornadoes. 51% overestimated the cost.
“The National Weather Service dubbed April 27, 2011, as the most active and deadliest day for tornadoes,” said FLASH President and CEO Leslie Chapman-Henderson. “That outbreak and the December devastation in places like Mayfield, Kentucky, reflect the need for continued public education efforts like #TornadoStrong. We want to ensure that people in harm’s way know where to go, what to do, and when to do it as tornadoes threaten and strike.”
Visit Tornado-Strong.org to view the 2022 Is America #TornadoStrong?Topline Consumer Survey Findings Report.View and download free resources, including Tornado Watch vs. Warning: Know the Difference and What to Do. Access the Choosing the Right Safe Room for You backgrounder that outlines six different types of safe rooms and includes short video features. Public educators and meteorologists can use the shareable social media graphics and FAQs to spread the word about tornado safety.
If your home is damaged or destroyed in a storm or natural disaster, you can take steps to protect your family’s safety, comfort, and financial stability during recovery.
Seek guidance from reliable sources, including emergency management officials, local government leaders, insurance company representatives, and nonprofit organizations that specialize in disaster response and recovery. Determine if your disaster-affected community has formed a long-term recovery task force and follow task force news to learn about relevant resources, services, and deadlines.
You may never forget your disaster experience, but you can recover and bounce back with the physical, emotional, and financial support available after the worst happens.
Contact your insurance provider as soon as possible to begin the claims process. Be aware that certain disasters, such as floods and earthquakes, may not be covered by standard homeowners policies.
Take reasonable steps to protect your property from further damage, like placing blue tarps over roof damage or broken windows. Save your receipts for any materials you use, and submit them to your insurance company for reimbursement.
Document your loss, and preserve damaged items until your adjuster has visited your home or your company advises that you may dispose of the items. Take photos and use videos to prepare a home inventory to document your claim. Assemble copies of receipts from damaged items.
You may have coverage for lodging and other living expenses while you are displaced from your damaged home, so be sure to include those receipts in your claim documentation.
For more information about insurance considerations during a disaster, check out our guide to homeowners insurance to find out more about filing a claim.
Throughout recovery, stay up-to-date and monitor local radio, television, and other information sources about where to get emergency housing, food, first aid, clothing, and financial assistance. Check out options for how to stay informed.
Post-disaster economic assistance programs may be available for individuals under certain circumstances. Direct assistance of food, shelter, supplies, and cleanup may come from any number of organizations, including the American Red Cross, the Salvation Army, and others. The federal government may help individuals and families with temporary housing, counseling, loans and grants, and other assistance. There are also programs to help small businesses and farmers.
FEMA provides housing assistance for qualifying disaster victims. Homeowners within a designated federal disaster area can call 1-800-621-FEMA (3362) to register.
Applicants should be prepared to describe losses and provide their Social Security Number, financial information, and the location of the damaged property.
Disasters can have an emotional toll, and adults may need crisis counseling or stress management assistance. Children, older adults, people with disabilities, and people who speak English as a second language may be especially at risk for emotional distress post-disaster.
Seek crisis counseling if you or a family member is experiencing disaster-related stress. Local faith-based organizations, voluntary agencies, or professional counselors can provide counsel and advice. FEMA, state, and local government agencies may also provide crisis counseling assistance.
Make sure you understand the personal effects of a disaster, recognize signs of disaster-related stress, and are familiar with how to manage that stress.
If in doubt, do not give out your personal information. Report to local authorities anyone claiming to be a government worker. Safeguard against disaster-related fraud by taking these precautions:
When returning home after a natural disaster, there are ways to make sure you and your family are safe. There may be immediate dangers like contaminated water and wild animals or less obvious threats like structural damage to your home.
Be careful when entering your home. Wear leather gloves and solid, thick-soled shoes with steel toes. Look out for loose boards and slippery floors.
Any kind of cleanup work can be hazardous, but cleaning up after a hurricane, tornado, flood, wildfire, or other natural disaster requires special care and attention. If your home is damaged and your yard is littered with debris after a disaster, there are ways to ensure that cleanup is safe and environmentally friendly.
Check with your local government for cleanup procedures before disposing of debris.
You can expedite cleanup by separating debris:
Put debris at your curbside, away from fire hydrants, trees, power lines, mailboxes, valves, or other items that could be damaged or make collection difficult.
Keep building debris and building contents separate from vegetative material and regular garbage. Check for special requirements like designated disposal sites other than curbside.
Start cleanup once you know you can safely enter your home, and follow this checklist to ensure your safety.
Attempting to dry out the contents of your home can take several weeks, and if the humidity remains high, microorganisms may continue to grow. If the house and its contents are not properly dried out and you notice musty odors, consider throwing out the wet materials.
If your home is damaged by a covered peril, you will need to notify your insurance company as soon as possible. All companies have toll-free telephone numbers for claims reporting, and most have company websites and app with online claims reporting options.
An insurance policy is a contract between you and your insurance company, so there are rules and procedures that you and your insurer must follow. The best way to understand your role is to read your insurance policy.
Are you in the dark about what your insurance policy will provide after a disaster? For example, you may have coverage for food that spoils when the power fails, even if your home isn’t damaged. And that food spoilage coverage may be deductible-free.
Did you know that a special, separate policy is required to cover some perils? For example, flood policies have a 30-day waiting period, and coverage limits may or may not provide enough to repair and rebuild your home after flood damage.
These are the kinds of questions you can answer during an annual insurance checkup to keep your policy current and keep you in the know before disaster strikes.
Contact your home insurance company or agent and request a policy review. Ask these questions to make sure you have the right financial resources to rebuild, recover, and bounce back from any disaster.
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.