Hurricane Season: Understanding Your Homeowners Insurance Policy

The storm season is well under way and has already delivered some severe damage to numerous locations. When a severe storm hits, most homeowners want to know if their homeowners insurance policy will cover the damage. While the answer is often yes, there are situations where it will be no, and the homeowner will be on the hook for the repairing storm damage. 

Unfortunately, many homeowners never read their policies and are unaware of what is covered and even more importantly, what is not covered. We thought it might be a good idea to take a look at what is covered by a standard homeowners policy and where you may need additional coverage for the storm season.

Flood Damage is Never Covered

One of the biggest misconceptions with homeowners insurance is that it covers flood damage. Almost every homeowners insurance policy excludes damage from flooding, it is necessary to purchase a separate flood insurance policy to be fully protected.

While flood insurance is optional if you own your home outright, if you have a mortgage your lender will most likely require flood insurance, especially if you live in a high-risk flood zone. Flood insurance is sold by both private insurance companies and the National Flood Insurance Program, or NFIP.

Policies purchased through the NFIP do come with limitations. Coverage levels are capped at $250,000 in dwelling coverage and $100,000 for personal property. If it would cost more than $250,000 to rebuild your home, you will need to find supplemental coverage in the private market. 

It’s not just homes in high-risk areas that need flood insurance, according to FEMA data, over 20 percent of flood insurance claims come from homes located in low to medium risk areas. If you are not carrying flood insurance and your home floods you will be responsible for the cost of repairs or rebuilding. 

Homeowners Insurance Covers These Categories

A standard homeowners policy provides protection in these four basic categories:

Dwelling: This coverage protects the structure of your home from covered perils. The policy pays out up to your coverage limits which you choose (with your agents help) when purchasing a policy. Always make sure you are carrying enough coverage to rebuild your home in the event it is destroyed by a storm. If you are under insured, you may need to cough up the extra money to finish repairs or rebuilding.

Detached Structures: Your homeowners insurance will cover detached structures on your property as well. This includes detached garages, sheds, outbuildings etc.

Additional Living Expenses: This portion of your policy will help pay for everyday expenses if your home is so damaged that you cannot live in it. This includes hotel costs, restaurants and even dry cleaning. This can be a financial lifesaver if you are out of your home for months. 

Personal Property: This protects your personal possessions and replaces them if they are damaged or destroyed by a covered peril. Most policies protect personal property at a percentage of your dwelling coverage. This percentage varies but is usually between 50 and 70 percent of your dwelling coverage limits. 

Deductibles Can Vary and Be Expensive

While a standard deductible is usually a fixed amount ($500-$2,000 are common,) many policies have a separate deductible for wind/hail damage or hurricane damage. These deductibles are usually a percentage deductible and if you are unaware your policy has these types of deductibles it can be an expensive surprise.

A percentage deductible usually ranges from 1 percent to 5 percent of your total policy limits. This means that if you are carrying $250,000 of coverage on your home and the policy has a 5 percent wind deductible you will be responsible for the first $12,500 for any claim related to wind damage. This can be a nasty surprise if you are unaware that your policy has separate deductibles. 

Read your policy in full and make sure you understand all of the deductibles and what you would be responsible for if you have to make a certain type of claim. If you have questions or don’t understand your policy, call your agent for clarification. 

Exclusions Exist

Most homeowner policies come with a few exclusions and knowing what they are is key to understanding your policy. While we already discussed the flood damage exclusion, here are a couple of other common exclusions:

• Earthquake and Ground Movements: Damage from earthquakes or ground movement such as sinkholes and landslides are not typically covered. Florida is an exception and requires insurance companies to cover sinkhole damage. If you live in an area that is prone to earthquakes or other ground movement, you may need to purchase a rider or additional policy. Check your policy for exclusions and make sure you are covered by additional riders or policies. 

• Sewer Backups: Most policies exclude sewer backup damage as well. This can be added to your policy as rider or endorsement. Most experts recommend adding it to your policy as it is very affordable coverage and sewer backups can quickly become very expensive. 

• Lack of Maintenance: You are required to perform routine maintenance on your home and make small repairs to keep damage from growing into major repairs. If you make a claim and your insurer determines that the damage occurred due to you not performing routine maintenance, they may deny the claim. 

ACV vs. Replacement Value

Homeowners insurance comes in a couple of different flavors and which one you have can make a huge difference. Actual Cash Value (ACV) policies take depreciation into account when putting a value on your home or personal property after you make a claim. This means that your 10-year-old TV is basically worthless according to your insurance company and there is little chance your claim check will pay for your new TV. 

A Replacement Cost Value policy (RCV) on the other hand will pay to replace your personal property with a brand-new item of similar value and quality, regardless of age. This means all of your possessions will be replaced with brand new items. 

ACV policies tend to be cheaper than Replacement Cost Value Policies but are hardly a bargain when it comes time to make a claim. Most industry experts recommend upgrading to an RCV policies unless you absolutely cannot afford it. 

Always Keep an Up to Date Inventory

Making a major claim on your homeowners policy is never an easy task and if you don’t have an updated home inventory it can be even more difficult. Always keep a home inventory in a safe place or in the cloud so you can quickly access it in the event of a major claim. There are numerous apps that can help make this somewhat tedious process a bit easier.