STORM DAMAGE INSURANCE GUIDE
When buying homeowners insurance there are several factors to consider. In areas where severe storms are common, it is especially important to understand the type of insurance policy you have, the limitations of your policy, what it covers and the types of storms for which you may not be covered.
Storm Damage Insurance Overview
Many homeowners have already experienced a severe hailstorm and witnessed the damage hail can cause to homes, automobiles, businesses and other property. When a hailstorm hits, it does the greatest amount of damage to the exterior of your home or property. Common types of damage caused by hail are: roof damage, siding damage, shingle damage, window damage and automobile damage. Learn how to identify storm damage.
Most standard homeowners policies, also known as HO-3 policies, cover both your home and its contents. Typically, you are covered against storm damage, theft, pet damage and some major disasters, such as tornadoes, hurricanes and hail.
Earthquakes and floods are usually not covered under most standard insurance policies and require a separate policy. Remember, home insurance policies do not cover poor maintenance or normal wear and tear, so it is a good idea to make sure your home is always properly maintained.
What to Do Before You Talk to an Insurance Agent
Before buying homeowners insurance, the first thing you need to determine is the replacement cost of your home. The replacement cost reflects the total cost to replace the structures on your property. This is typically different than the market value, or sales price of your home, which takes into account other factors including the value of your lot.
An easy way to figure out your replacement cost is to multiply the building cost per square foot of your home, with the number of total square feet. If you don’t have a good sense of building costs for your area, any local contractor should be able to give you a good idea of average building costs in your area.
Once you know your replacement cost, you’ll have a good idea of what your insured liability limit should be. Liability limit is the amount of coverage you have if something, such as a tornado or other serious storm, destroys your home. Most experts recommend liability limits equal to the replacement cost, so if your home is totally destroyed your insurance will cover the costs to restore or rebuild your home, including living expenses if you are unable to inhabit your home.
If you live in an area prone to flooding, make sure you obtain flood insurance, which is typically a separate policy. If you have questions about your coverage, check with your insurance agent and make sure you have a solid understanding of your coverage, especially as it relates to serious storm damage or other catastrophic losses.
In states where a severe tornado not only threatens your home and its contents, it is important to understand the difference between actual cash value insurance and replacement value insurance. Actual cash value insurance compensates you for the actual, depreciated value of the items in your home. So, if you have a TV that originally cost $500, but is now worth $100, your insurance will pay you $100 if it is destroyed.
For homeowners with expensive electronics, art, and other furnishings, replacement value insurance is a smart way to go. Replacement value pays you the full amount it would cost to replace a broken, damaged or missing item. So, if a storm destroys a $4,000 plasma TV inside your home, your insurance will cover the full $4,000 replacement value of your TV, and whatever else is damaged inside your home, minus the cost of your deductible, up to the limits of your policy. If you own very expensive individual items, such as original art, or valuable jewelry, you might consider insuring those items individually, under a separate policy.
Whatever type of insurance you choose, it’s always wise to take an inventory of the items in your home. If your home is completely destroyed, you will not be able to remember all of the items you own, unless you have a detailed inventory and pictures of what is inside. It is always a good idea to store your inventory list and pictures in a separate, secure location, such as a bank safety deposit box. If you have a digital camera, take pictures and email them to yourself, along with your inventory list.
A deductible is the amount you are required to pay out of pocket before your insurance kicks in. Typically homeowners insurance deductibles range from $250 to over $1,000. So, if your home is damaged by a hailstorm and incurs $10,000 in damages and you have a $500 deductible, the insurance company will pay $9,500 towards your repairs. The higher your deductible, the lower your premium will be.
When deciding on a deductible, make sure it’s an amount you can come up with easily, that won’t create a financial strain or hardship. Some companies are now offering policies with high deductibles, including deductibles that are calculated as a percentage of your home’s value. For example, if your home is worth $200,000 and you have a 2% deductible, you will have to come up with $4,000 before your insurance pays anything. While these types of policies can offer a lower premium, make sure you are able to cover the cost of the deductible, in case a severe storm or disaster hits your area.
Shopping for Homeowners Insurance
When shopping for a homeowners policy, it is smart to check out several different insurance companies. Different insurance companies offer a wide range of coverage levels, discounts and prices. Don’t just shop the companies you know best, but search for the policy that works best for your situation. If you come across a policy that looks good, but is offered by a company you haven’t heard of, it’s easy to check out their background. Here are three websites you can use to investigate the financial strength of an insurance company:
- Ambest (www.ambest.com)
- Fitch Ratings (www.fitchibca.com)
- Moody’s Investor Services (www.moodys.com)
When selecting a policy, start by researching your area. You’ll want to have a firm understanding of the storm damage history of your neighborhood related to:
- Wind Storms
- Natural Disasters
Make sure the insurance policy you select adequately covers storms and natural disasters in your area. Watch out for insurance companies known for unfairly denying claims. Every year, the American Justice Association publishes a list of the 10 Worst Insurance Companies. If your insurance company is on the list and your insurance claim has been denied, make sure you connect with a reputable contractor with the experience to fight for your rights.
Saving Money on Homeowners Insurance
There are many factors insurance companies take into account when determining the price of your insurance premium. Some factors that affect the cost of your premium may include:
- History of a severe storm or disaster in your area
- Neighborhood crime levels
- Quality of building materials in your home
- Building costs in your area
- Size and overall condition of your home
- Distance from a fire station
You may be eligible for a discount on your insurance premium by making certain improvements to your home, which can add up to significant savings. The following list of improvements will not just result in savings, but will make your home safer as well.
- Impact resistant roofing shingles
- Shatterproof windows
- Storm shutters
- Reinforced tile or slate roof
Most states prohibit insurance companies from canceling your insurance policy or singling you out for a rate increase for filing a storm damage claim. If you live in an area with a high propensity for severe storms or other natural disasters, you should expect premiums to be higher.
Insurance companies can raise rates for everyone living in a storm prone area. If this is the case, your rate will increase whether or not you file an insurance damage claim. So, if your home has been damaged by a tornado, hailstorm, severe wind, or other type of natural disaster, it is in your best interest to file an insurance claim to pay for the damage. If you fail to file a claim, your increase in premium will pay for everyone’s repairs except for yours.
If you have storm damage to your home or commercial building and need to file an insurance claim, review the guide to filing an insurance claim for storm damage.