Hurricane Florence gaining strength as it nears East Coast. Why homeowners outside its path should check their insurance
- Damage from flooding is excluded from standard homeowners' policies, which means separate coverage is required for protection.
- Anyone considering flood insurance shouldn't wait until a storm is approaching. It takes 30 days for a policy to become effective.
- Additionally, policies typically come with a hurricane deductible.
As Hurricane Florence continues steadily marching toward the U.S. East Coast, homeowners outside its projected path might feel relief.
Not so fast. They should probably check their insurance coverage.
The massive storm, upgraded at noon on Monday to a Category 4 hurricane with sustained winds of 130 mph, is expected to bring damaging winds, heavy rainfall and life-threatening storm surges when it begins pounding the Southeast and mid-Atlantic coastlines on Thursday.
While it's too late for homeowners in its path to make insurance changes, people in other hurricane-prone areas should take it as a reminder that the next big storm could be headed their way.
The Atlantic hurricane season runs from June 1 to Nov. 30, although the peak season is mid-August to late October. Last year's three monster storms — Hurricanes Harvey, Irma and Maria — hit during that period of high storm activity. Combined, they caused $265 billion in damage, according to the National Oceanic and Atmospheric Administration.
It's a big risk not to have sufficient coverage if you live in an area prone to storms. As many past hurricane victims know, it only takes one major weather event to seriously damage — or destroy — your home.
"Most people fail to read their [homeowners] insurance contract to understand what's covered and what's not, and then they're surprised after an event when they discover they didn't have the coverage," said Lynne McChristian, a consultant to the Insurance Information Institute.
It's also important not to wait until a storm is on the horizon. Depending on the type of insurance, there could be a lag between when you first decide to get it and when it takes effect. And once a storm has been named, forget about it.
Here are tips for making sure you're prepared if the next "big one" heads your way.
Check your deductible
There's a good chance your homeowners insurance policy has a hurricane deductible. It typically ranges from about 1 percent to 5 percent, depending on the specifics of your insurance contract. Some homeowners might opt for an even higher deductible if it's available.
It's important to note that the percentage is based on your insured value, not the damage caused. So if your home is insured for $200,000 and you have a 2 percent hurricane deductible, you'll pay $4,000 even if the damage is only, say, $10,000.
This means you need a plan to cover your share in the aftermath of a disaster.
"People should never take a higher deductible than they can afford," McChristian said.
Prepare for flooding
While many homeowners policies cover wind damage, they generally exclude flood damage. Yet floods are often what cause the most destruction.
"Most people who live in areas where hurricanes are a threat are also at risk of flooding," McChristian said.
For coverage, you'll need flood insurance through the federal National Flood Insurance Program or a private insurer. Be aware, however, that there are coverage exclusions and limitations.
For example, a government flood policy won't cover all of your belongings in your basement outside of things such as washers and dryers and water heaters. Separate insurance would be required.
If you think you need a flood policy, don't wait. You will have to wait 30 days for it to take effect.
Renters are vulnerable, too
Even if you don't own your home, your finances are still at risk if a storm barrels through and damages your residence.
"People underestimate the value of their [belongings] when they rent," McChristian said. "You can easily have tens of thousands of dollars' worth of contents in your home."
Renter's insurance is an option for covering your belongings. It also can cover the cost of having to live somewhere else if you cannot remain in your home after a storm.
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Rebuilding an older home
If you have an older home and it is substantially damaged, it would need to be rebuilt in accordance with current building codes. Chances are those codes are stricter than when your house was first constructed.
"It can end up costing 25 percent to 50 percent more if you have to rebuild your home under a newer code," McChristian said.
Not surprisingly, there's an insurance policy for that. Called building ordinance and law coverage, it can cover the extra expenses involved in bringing your house up to code.
Safeguard your documents
One of the last things you want to deal with when your home is damaged is not knowing where your important records are.
"There are some documents you will need right away after a disaster or tragedy strikes, and others that you may not need right away but will be very difficult to replace if they are lost or destroyed," said Neal Stern, a CPA and member of the American Institute of CPAs' Financial Literacy Commission.
Make sure records such as your insurance policies, title to your car, birth certificate and the like are safely stowed in a fire- and flood-proof lockbox or similar option (i.e., a safe deposit box at a bank).
Stern also recommends keeping copies of important documents in a location away from your home, such as with a relative or close friend. Or, if you have online cloud storage, you can keep copies there.