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Natural Disasters Provide a Reminder to Give Yourself a Homeowners Insurance Checkup
September 20, 2017
Hurricane Irma caused $36 billion to $53 billion in flood and wind damage to homes in Florida, Georgia, Alabama, North Carolina, and South Carolina, according to just-released estimates by CoreLogic, which provides risk data to major insurance companies.
Just over half of that estimate—$20 to $30 billion—was due to flood damage and was not insured.
The big uninsured flood losses are a stark reminder of the need for all homeowners to periodically check and update their homeowners insurance to make sure they're properly protected.
It's never too late to do a homeowners insurance checkup before the next threat heads your way—Hurricane Maria is the latest threat moving toward the East Coast; the Atlantic hurricane season runs through Nov. 30.
The extreme weather cycle will probably start all over again in the new year with severe winter storms. After that, March through August is peak season for tornadoes. Wildfires also tend to flare up in spring and summer, and the Atlantic hurricane season starts again in June.
7 Steps to Full Coverage
Norrine Brydon, head of research for CoreLogic, recommends that you meet with your insurance agent to ensure that you're properly covered. He or she will have software that can estimate the replacement cost of your home, should the worst happen.
Keep in mind that market value is not comparable to construction cost, Brydon says. Market value includes the cost of the land and depends on things like your home's location, the economy, and the price you could sell it for. The cost of new construction to replace your home could be very different.
To make sure you get the most accurate replacement cost, follow these steps:
Review your home's vital statistics as listed in your policy. Make sure the policy includes correct information about your home's square footage, the number of bedrooms and bathrooms, its age, and the structural materials it was built with. Also check that the type of flooring listed in the policy is accurate.
"If you've added a second story to the house or remodeled with top-of-the-line upgrades, keep your agent in the loop," says Chris Hackett, senior director of personal lines at the Property Casualty Insurers Association of America, a trade group. Such a change would make a big difference in how much insurance you need.
Get a "new policy" quote. Even if you're renewing your policy, ask your agent to recalculate your home's reconstruction value using the most current construction cost data and updated property details. A "new policy" estimate will likely be more precise than a "renewal" quote, which may be based on less up-to-date info.
Request a copy of the reconstruction valuation report. Review it for accuracy and make any corrections necessary. Ask the agent if you have any questions.
Repeat this process every year or two. One reason so many are under-insured is inertia. Homeowners buy insurance when they buy their home, then they forget about it. Rising construction costs can quickly make your policy limits outdated.
Buy the extended replacement cost endorsement. Most homeowners insurance provides for replacement cost up to specified limits. Hackett says you want extended replacement cost coverage, which will typically pay up to 25 percent above your limits. That costs more, but it's especially important when natural disaster strikes and the sudden large demand for construction labor and materials causes price spikes.
Protect against other perils. Another reason homeowners can find themselves underinsured is because standard homeowners insurance policies don't cover everything. You’ll need additional policies for flooding and earthquakes. You might also need separate policies for hurricanes, wind, and hail if you live in a high-risk zone.
Consider getting a "floater" to your policy. If you own unusually valuable furs, jewelry, silverware, or artwork, a “floater” could cover the full value of those items. If you live in an older home, consider adding an ordinance or law endorsement (an extra feature), which will help pay the higher cost of bringing plumbing, wiring, or other key systems up to current codes when rebuilding.