Owners of primary residences and secondary residences may not clearly understand their owner’s insurance policy regarding damage caused by a natural disaster.
We sought advice from two experts in insurance and natural disasters: Bob Hertel, director of product development for Acuity Insurance in Sheboygan Falls Town, Wisconsin, and Darren Wood, president of Recoop Disaster Insurance in Des Moines. Both responded via email and their responses have been edited.
What are common natural disasters and the average household costs of these disasters?
Hertel: Common natural disasters are different depending on where you live. Average claims costs vary greatly depending on the type of disaster. Based on claims data from Acuity, the average cost of a wind or hail claim is typically less than $15,000. However, forest fire claims are significantly higher, often running into the hundreds of thousands of dollars.
Tips for Homeowners Living in Wildfire Prone Areas
Wood: The average exposure to severe natural disasters such as hurricanes with storm surges, wildfires, tornadoes, earthquakes, gas explosions, winter storms and dust storms is $54,000.
Are most of these problems covered by home insurance?
Hertel: Damage caused by wind, hail and fire are generally covered by a standard home insurance policy, including losses caused by wildfires and tornadoes. Losses caused by flooding or ground movement, such as earthquakes or landslides, are not covered by a standard home insurance policy. Special endorsements can be added to a standard home insurance policy to protect against earthquakes or landslides. Your insurance agent may be able to offer you flood insurance through the National Flood Insurance Program.
Wood: Yes, but there are gaps in coverage. For example, certain catastrophes such as earthquakes and storm surges are not usually included in standard homeowner policies, so you may be required to cover these damages yourself. Other common shortcomings include things like depreciation in the value of your roof, high deductibles for disasters like hurricanes, and discrepancies between your home’s replacement value and its market value, which create costs that consumers must cover with their wallet. Also, with typical insurance, people could be forced to wait up to 30 days for payment after submitting a claim. It can seem like an eternity if your home is badly damaged or uninhabitable.
What is the difference between market value and guaranteed replacement home insurance?
Hertel: Since the cost of construction resources and labor has recently increased dramatically, an important coverage to consider is the guaranteed replacement cost, which guarantees that you will not be responsible for the difference between the limit of your home insurance policy and the actual cost of reconstruction.
Here is an example of the importance of guaranteed replacement cost coverage. Suppose a house is insured with a dwelling limit of $550,000. This house is then destroyed by a tornado. After the tornado, building materials and construction labor are scarce, causing reconstruction costs to reach $1 million to rebuild the same house. With guaranteed replacement cost coverage, the insurer would pay $1 million to rebuild the house; without guaranteed replacement cost coverage, the owner would have to pay all or part of the additional $450,000 to rebuild.
Wood: Most extended replacement policies are capped at 125% based on the insured value of a home. The average homeowner may have to pay up to 2-20% of their home’s value because these policies are based on market value and not replacement cost, which we know is quite high these days.
Is it common for insurance to cover the temporary move if the house needs major repairs?
Hertel: Yes. A standard home insurance policy includes coverage for living expenses if your primary residence is uninhabitable due to a covered natural disaster. Depending on the damage, this may include a short term hotel stay or longer term accommodation while your home is restored or even rebuilt.
Is umbrella insurance useful in the event of a natural disaster?
Hertel: No, an umbrella policy does not provide additional protection against natural disasters. An umbrella policy provides additional liability insurance for injury or property damage you cause to others.
In the event of a natural disaster, property insurance — not liability insurance — is needed to cover the damage.
Do you have any other tips for homeowners regarding natural disasters and insurance?
Hertel: It is important to fully understand which natural disasters are covered by your home insurance policy. If you live in an area prone to flooding or earthquakes, you may need additional insurance protection. It’s also important to check your policy limits, which determine the maximum amount your insurance will pay. Your insurance agent can help you make sure you have the right coverage and limits.
Wood: Recoop Disaster Insurance is comprehensive disaster insurance that pays a lump sum cash benefit (up to $25,000) following a covered natural disaster, including hurricane (with storm surge), wildfire , tornado, earthquake, gas explosion, winter storm or dust storm. Your premium is based on the amount of coverage purchased and the level of risk for your area. Recoop catastrophe insurance is not designed to replace your landlord’s or renter’s policy; it is designed to work with it and exists to cover the gaps left by most home insurance policies following a natural disaster. After a disaster, you contact Recoop directly to answer a few questions, submit photos of your home as proof of loss, and then the claim is reviewed. If everything is in order, payment occurs within 24-48 hours of application approval.