Home Insurance: Are You Protected Against Natural Disasters?

Floods, fires, and other extreme weather events have grown more frequent and severe in recent years. And experts say the effects of climate change will only make things worse.

According to the Insurance Information Institute, hotter, drier environments raise the risk of wildfires Opens in new window in some areas; violent rainstorms could mean more flooding in others; and hurricanes are expected to become more intense.

Higher risks also mean potentially far higher costs to repair damage and rebuild homes hit by natural disasters. One model even predicts that losses on U.S. coasts, where residential and commercial development and density have soared, will double every decade or so.

To help prepare, your home insurance coverage might need to change. Here's what you should know to keep your home and family well protected.

What's in a typical home insurance policy?

Standard homeowners insurance policies include four areas of coverage:

1. Repairing or rebuilding the structure of your home (including detached structures like a garage).
2. Replacement of personal belongings (clothes, electronics, furniture, etc.) if stolen or destroyed by an insured natural disaster. This includes damaged trees, plants, and shrubs.
3. Additional living expenses like hotel bills and restaurant meals while you wait for your home to be repaired or rebuilt.
4. Liability. This pays for bodily injury or property damage to others caused by you, your family members, or your pets. (It's not related to natural disasters.)

Which disasters does it cover?

Standard homeowners policies cover damage caused by fires, hail, hurricanes, and lightning—but not by earthquakes (except fires that result from them) or floods. If your home's at risk for those kinds of disasters, you may need to buy special insurance.

How to get flood insurance

Homes in federally designated flood zones may be required to have flood insurance. (Check the Federal Emergency Management Agency's [FEMA] Flood Map Service Center Opens in new window to enter your address and evaluate your risk.)

But even if you don't live in an official flood zone, consider getting flood coverage if your home is at risk of water damage from excess snow melt, heavy rainfall that might flood your basement, or even overflows from nearby ponds or streams.

Flood insurance is available through the National Flood Insurance Program (NFIP), administered by FEMA but sold by private insurance agents. There's typically a 30-day waiting period before coverage takes effect—so don't wait until the rainy season to buy.

What flood insurance covers

To qualify for coverage Opens in new window, the NFIP says a flood must affect at least two acres or at least two properties on land that's normally dry. This can include flooding in basements caused by heavy rain or sewer backup damage if directly caused by flooding.

There are two types of flood insurance (each with its own deductible):

• Building coverage

  (up to $250,000): Repair and replacement of home structures and essential equipment like foundation walls, electrical and plumbing systems, furnaces and water heaters, refrigerators, stoves, permanently installed cabinets and carpeting.

• Contents coverage

  (up to $100,000): Cash value to replace personal belongings like clothes, electronics, furniture, some small appliances, and carpets (such as those installed over hardwood floors) not included in building coverage.

Even so, be aware of certain limits to flood insurance. For example, personal property you keep in a basement is not covered. Neither is property outside an insured building, such as a deck, patio, or swimming pool.

How much does flood insurance cost?

Exact flood insurance policy premiums depend on your location and other factors (such as your policy's deductible and your home's elevation); you can get a quote from a participating flood insurance provider. But if you live outside a high-risk flood zone, or you're willing to take some steps to lower your risk—like installing flood openings, elevating utilities to a higher floor of your home, or raising the structure of your home itself—you might qualify for cheaper coverage.

What about earthquake insurance?

Earthquakes are another natural disaster not covered by standard homeowners insurance. To protect yourself, you'd need a separate earthquake insurance policy or to buy a rider for your current homeowners policy.

Of course, many parts of the U.S. aren't prone to earthquakes. (Check FEMA's Earthquake Hazard Maps Opens in new window to see where the greatest property risks lie.) But even if you live far from a major fault line, you're not immune—as residents of Oklahoma and North Carolina recently learned.

Indeed, according to a 2014 U.S. Geological Survey study, 42 states have a "reasonable chance" of experiencing a damaging earthquake. Yet the reports that as of November 2018, only 11% of U.S. homeowners had earthquake insurance Opens in new window.

That doesn't mean "The Big One" is coming your way no matter where you live—or even that earthquake insurance is available in your state. (Check with your insurance agent or state insurance authority to find out.) Also note that coverage doesn't come cheap. According to the III, deductibles often range from 5% to 15% of the policy limit—so if you buy $200,000 in coverage, your deductible might be as high as $30,000.

How much homeowners coverage do you need?

Keep in mind that your homeowners policy needs to cover not just your purchase price or what you'd need to pay off your mortgage, but completely rebuilding your home. Depending on how long you've lived there, the cost of rebuilding might be a lot more than it cost to buy your home. And if you're hit by a catastrophe that affects hundreds of homes in your area, the price of construction and building materials might push it even higher.

Also, your homeowners coverage amount might have to change over time. For example, if you've made improvements, renovations, or additions (even of special features or expensive items like a standby generator or electric car charger), you might need more "full replacement" coverage in the event of a disaster. Do an updated home inventory to estimate the value of your personal property and how much it would take to fully replace your belongings.

Most homeowners insurance policies will replace personal belongings at a level of equivalent to 50–70% of the coverage Opens in new window for the structure of the house. So if you have a $300,000 policy, depending on the details you might have $150,000–$210,000 of coverage for personal belongings. If you have high-value items such as jewelry, artwork, musical instruments or special equipment that would be expensive to replace, you can get extra protection by buying a "floater" for your policy.

What about renters insurance?

If you don't own your home, you can get renters insurance that works in some of the same ways as homeowners insurance. Renters policies don't cover the costs of damage to the building or rental property structure; those are the responsibility of the landlord. However, renters insurance can help protect your personal belongings Opens in new window from disaster, and it also covers personal liability and additional living expenses.

To decide how much coverage you might need, do a home inventory of all your possessions. Also consider getting replacement-cost coverage instead of actual cash value coverage. Actual cash value coverage will recoup only the amount of money your possessions are estimated to be worth today. Replacement-cost coverage might raise your policy premiums a bit, but it can help you replace your things faster. You can also add a "floater" Opens in new window to your policy to cover certain high-value possessions.

Like homeowners insurance, renters insurance covers losses due to certain types of disasters: fire or smoke, windstorms, lightning, vandalism or theft, water damage such as burst pipes, flooding caused by plumbing issues, and overflows from an upstairs neighbor. However, it doesn't cover flooding or earthquakes. (You can buy separate flood or earthquake policies as a renter, or get a rider for your policy, depending on your state and your insurer's options.)

The good news is that renters insurance tends to be quite affordable (and costs less than comparable homeowners insurance). As of 2017, the average renters premium was $180 per year Opens in new window (vs. $1,211 for homeowners coverage). Not bad for peace of mind.

Footnotes

Ben Gran is a freelance writer based in Des Moines, Iowa. He writes about personal finance, public policy, financial services, technology and business.

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