In 2020, there were 22 different billion-dollar weather and climate disaster events in the United States.
Do you know what and how much your homeowners insurance would pay for if your house were damaged in one of them? If you answered "no," you're putting yourself at great financial risk, and you need to review your homeowners insurance policy ASAP.
Reviewing your homeowners insurance policy every year is highly recommended to make sure you have the proper amount of coverage to cover the cost to rebuild or repair your home, replace your belongings, and protect your future should someone file a liability claim against you for injuries or damage to their personal property. But, checking your homeowners insurance policy is more important as we approach 2021's severe weather season — keep reading to find out why.
Climate change is one significant factor behind the increasingly important need to check your homeowners insurance policy.
People who live in areas that are prone to hurricanes, tornadoes, flooding, hail, severe storms, and/or wildfires — which are all becoming more prevalent — need to know what kinds of weather-related damage their policies will cover, will exclude, or will charge a separate (and probably higher) deductible for.
Soaring lumber prices are another factor making it especially important for homeowners to review their homeowners insurance policies this year.
Lumber prices are already up nearly 70% this year — that's a whopping 340% increase from last year! This means that the cost of repairing or replacing a home if severe weather strikes will likely cost you way more than expected. If you're not fully up to speed on your policy, a surprise bill like that may be a major financial hit. When you take the time to read and review your policy, you give yourself ample time to plan.
Let's say you read this article, checked your policy, and noticed that you are not covered for hail damage. This gives you two options, a) call your insurance provider and request the coverage or b) start putting aside additional money every month so you can afford to pay the balance on any damage to your home without having to take on significant debt.
Depending on where you live and the typical weather in your area, your homeowners insurance policy may provide coverage for location-specific events. Additionally, state law often dictates what policies are required to offer in their jurisdiction.
Let's go over what you should review in your policy annually:
Standard homeowners insurance policies usually cover the cost of home repair or replacement up to the amount the home is insured for. Other policies contain clauses that increase the replacement amount to 125%-150% of your dwelling coverage. Other policies may have no cap on replacement costs. So, it's important that you know which guaranteed cost-replacement provision you're covered by — especially if you live in a disaster-prone area.
As you evaluate your policy's replacement cost provision, don't forget to consider the higher lumber costs associated with rebuilding your home — especially if it's been years since you bought your insurance coverage.
Though flooding is a frequent element of natural disasters, fewer than 15% of homeowners have flood insurance. When homeowners are faced with storm damage that's not covered by insurance but took place in a federally declared disaster zone, there may be government programs that will provide financial assistance, like FEMA grants. But, federal help is never guaranteed and likely would not cover the entire cost of getting your family back on their feet. For example, in 2017, when Hurricane Harvey dumped up to 60 inches of rain in some areas of Texas, the individual grants from FEMA were for about $7,000. But, the average claim through the National Flood Insurance Program was over $100,000.
Most homeowners policies exclude flooding from coverage. But, it only takes about one inch of water in your house to cause significant damage worth $25,000. What's more, one in four flood insurance claims come from outside of a high-risk zone!
To ensure you're covered, you will need to look into separate flood insurance. Flood policies take 30 days to become effective, and there are coverage exclusions and limitations, so make sure you do your research before you commit to a policy.
Though the standard part of your homeowners policy likely covers many perils, there are some weather-related events that come with their own separate deductibles.
For example, residents in Hurricane-prone areas have hurricane deductibles, and residents in high-wind areas have separate wind deductibles. The coverage for those policies usually ranges from around 1-5% (with a $500 minimum), depending on your insurance contract.
It's also important to point out that earthquakes are not covered by standard homeowners insurance policies — even in California! So, separate earthquake insurance is required. What's more, other types of earth movement aren't covered either, like landslides and sinkholes.
Homeowners insurance is critical to keeping your family's future protected and giving you the peace of mind to know that you're covered in the event of a natural disaster. PolicyScout was founded to make insurance easy to find, easy to buy, and easy to understand. As an independent voice in the insurance landscape, PolicyScout has thoroughly evaluated the big players in the insurance industry so we can help you find the best policy for you and your family. Browse homeowners insurance policies with PolicyScout today.