Until a disaster strikes, most homeowners are under the mistaken belief that their homeowners policies cover them in case of floods and other weather driven water events. However, insurance policies for homeowners do not cover flooding or rising water or storm surges; never did, never have, never will! (Just like these policies have never covered earthquakes or nuclear wars either).
To get flood coverage, you have to go through the Federal Government’s National Flood Insurance Program.
You can buy the flood insurance through some insurance agents (such as Traveler’s or Fidelity) only because the federal government cannot easily service accounts or write policies. The standard homeowners policy traditionally covered wind/hail and fire, but now these policies are being written separately, or there is a separate wind/hail deductible written into the policy.
Why? Because the Gulf Coast area was hit with two of the largest hurricanes, Hurricanes Ivan and Katrina, in history just a few years ago. Because the Northeast was hit with a monster hurricane, Hurricane Sandy, just a few months ago. The prediction is that we are heading into a fifteen year period of more severe, frequent hurricanes and the insurance companies are trying to protect themselves from the impact.
So, what does all of this mean?
It means that if you want flood coverage, and wind coverage, and fire coverage, than you will probably need three different policies with three different premiums, or three different deductibles. Wind coverage used to come under the “all peril” deductible (say a $500 lump sum), but now it is subject to an amount that is 2-5% of your dwelling coverage. For a wind-only policy, you must typically go through the state because the exposure of private carriers is too great and they often no longer offer this type of policy.
What is the difference between wind and hurricane coverage? Hurricane coverage applies when there is a named storm. Otherwise, a bad storm with lots of wind and rain like we get on the Gulf Coast is just a wind peril. It is critical to spend time with your agent and let him or her explain what you are covered for.
Let him “walk you through” your policy.
Let him explain what is not included in your policy. Look at the Declarations Page with him, as well as the attached “Endorsement” pages to your policy. Some insurance companies, like State Farm, have helpful color pictures of what is covered. Ask for visual aids if necessary. Why not understand what you are paying for!
What is the most important category (i.e., dwelling, dwelling extension, personal property, loss of use, medical payments, and scheduled items) of coverage to have? Nothing is more important than the amount of coverage you have on your dwelling. It has nothing to do with market value and nothing to do with tax assessment. It has to do with what it will cost to build your house. Reconstruction costs have gone through the roof. Building supplies are in low supply and high demand. Think about whether you will be able to re-build your same home for the amount of coverage on the dwelling line.
Finally, look for and ask about “replacement cost coverage.”
What it will cost to replace your contents, not what the “actual value is of the item because that will not give you enough money to buy another one – like a sofa or a bed. Also, schedule individually any extra valuable items, like jewelry, paintings and/or home business equipment, that cost more than what is listed in the “limits” section of your policy. Ask about other extras, like coverage for “back-up of sewer and drain” and “theft coverage protection.” You are paying hefty premiums for coverage, so be an inquiring mind. Ask questions, ask for visual aids, discuss weather and event scenarios (pipes bursting, hurricanes, tornadoes, floods,wind damage, and earthquakes), and keep asking questions until you truly understand your homeowners policy.