By Pam Krueger
Hurricane season in the Atlantic peaks this month, and Hurricanes Harvey, Irma and Maria have taken away any sense of complacency about what our insurance really covers.
So do you really know if you’ll be insured in the event of a hurricane, flood, tornado or any other natural disaster? You might think so because why would you buy insurance if it doesn’t protect you from catastrophic losses to your property? One thing we know: there will be more weather events on the horizon, so this a good time to find out where the gaps are in your coverage and if what you think you’re paying for is really what you’re getting in terms of value.
Satisfaction on the rise, but so is confusion
J.D. Power released the results of its 2017 U.S. Home Insurance Satisfaction Survey this week, and the results tell the story. Although overall satisfaction with homeowners policies is at an all-time high score of 808 points out of 1,000 this year, certain areas continue to be a big problem. The lack of understanding about what is covered in a typical homeowners policy is chief among them.
The other big issue that the survey revealed was poor customer service, which stems directly from lack of understanding about coverage. Customers who believe they have enough coverage are going to be very unhappy with their insurer's customer service if the unexpected happens and they actually do not have enough because they didn't understand what they were buying in the first place. Because this year's survey was conducted in June and July, well before Harvey, next year's survey could indicate a higher level of customer frustration because insurers are only just now being tested by Hurricanes Harvey and Irma.
J.D. Power also found that despite the high overall level of satisfaction with homeowners' policies, only 48% of customers said that they completely understood their policies. And that’s a problem because you can’t wait until the last minute to buy hurricane insurance.
A primer on hurricane insurance: you might not have what you need
The best way to avoid the shock of learning your insurance won’t cover your losses in a disaster is to take some time to get up to speed about your policy, starting with what types of coverage and how much you need for the region you live in. It’s not only the threat of floods, high winds or earthquakes. There are other common threats to your home, such as mold, termites or even plumbing problems, that most likely require extra insurance protection and higher premiums.
The over-and-above coverage for plumbing issues might only cost an extra $100 a year, but the damage could easily run into the thousands if a problem occurs. Ever thought about a sinkhole? If you live in Florida, you should know that your home policy probably won’t cover damage caused by a sinkhole. That’s because anything that could be considered earthquake-related is excluded.
Let's look at hurricane-prone regions of the U.S., given that it's still hurricane season. No matter where you live, a homeowners policy won’t pay for all types of hurricane damage, although each individual policy probably covers some of them. These guidelines are generalizations of what financial advisors would say are often the case, but every single policy in every single city or town is different. That’s why as a homeowner, you really have to become your own insurance investigator and inspect each policy’s ins and outs in order to find the gaps.
As outrageous as it sounds, it’s quite possible that your standard homeowners policy may explicitly exclude hurricane damage from your standard policy. Or the insurer might require a much higher deductible for this type of damage, so make sure you check every single bit of fine print. In the case of a super high deductible, you’ll need to plan to sock away extra emergency savings as a sort of self-insurance to cover that high deductible.
Flooding and high winds do most of the damage in a hurricane, so it’s vital to know you will probably need to pay for separate coverage in the form of a rider on your existing insurance policy to make sure you’re adequately covered for both. Maybe your policy covers wind damage, but don’t make that assumption if you live in an area that's especially at risk for wind damage to property. Flood insurance is especially important because it almost always requires a separate policy or rider on your current policy, and generally it takes 30 days to take effect, according to FloodSmart.gov. It's surprising to learn from the Flood Insurance Management Agency that only 42% of homeowners affected by these recent storms in Florida had flood insurance coverage.
What about high winds? In that case, your insurer will probably pay for the damage caused directly by wind, so you might not need to buy separate insurance. But if you live on or near the coastline, then you might need specific windstorm coverage. And again, you’re on your own for all the damage caused by floodwaters in the aftermath of the storm. Often it’s the flooding that causes far more damage than wind in a hurricane, especially when homeowners board up their homes to protect them, and this is why insurers try to sidle out of covering it. But you can buy flood insurance no matter where you live through the National Flood Insurance Program.
Get an objective expert to help you audit your insurance
What you're doing right now, which is researching and reading about it, is a good start to understanding exactly what is and isn’t covered when it comes to protecting your property. However, as you probably noticed, insurance is intended to be confusing, a fact made even truer by the reality that every single policy is different.
The good news is that because property insurance is part of your overall financial picture, financial advisors are knowledgeable about it. The kind of financial advisor I’m referring to is an independent fiduciary advisor who doesn’t work for any insurance company or brokerage firm. This type of advisor works only for fees paid by clients, and he doesn't pitch insurance is because he refuses to take kickbacks or commissions from selling you policies. A fiduciary advisor or financial planner will make it a priority to make sure you're covered, whether it's by insurance for the unexpected or by a strong plan for retirement saving and investing.