Hurricane season is right around the corner. That makes knowing what your homeowner's insurance policy covers (and what it doesn't) crucial; it could be the difference between paying a small deductible or shelling out hundreds of thousands of dollars.
Hurricane Harvey and Hurricane Maria, along with the other storms that barreled their way through the country, led to the costliest hurricane season in history: $306 billion in damages in 2017. By comparison, the previous record-holder in 2015 was a little more than $214 billion.
While 2017 might be an outlier compared to recent years, many places are still at risk to torrential downpours, floods and wind damage.
Individual states regulate insurance companies and even then, policies differ from insurance company to insurance company. When it comes to hurricane season, these are some of the policies and terms insurance agents suggest people look for to make sure they are prepared.
Types of Hurricane Damages
Hurricanes leave destruction and ruin in their wake. Families' lives are upended, people lose loved ones and personal belongings. But when it comes time to rebuild, insurance companies will look at two specific types of damages caused by hurricanes: Windstorm and flood.
Flood insurance ends up being of the upmost importance for people come hurricane season, and it's coverage that people need to make sure they have, said Jim Whittle, associate general counsel for the American Insurance Association.
Most windstorm and flood deductibles, or the portion of an insurance claim that people have to pay themselves, will be based on a percentage of the insured value of the home and not a flat rate like most deductibles.
This means that more times than not, it's a higher out-of-pocket cost for people, said Lynne McChristian, consultant for Insurance Information Institute.
Another important aspect to know is that the value the percentage is taken from is based off the cost to rebuild a home, according to McChristian, and not the real estate value. The costs to rebuild a home will be higher than the real estate value.
Understanding Your Homeowner's Policy
Insurance can be a tricky subject for people. Everybody knows you need coverage in some form or another, but not many invest the time in understanding the policies they buy and what they specifically need.
"Insurance is one of those products that people buy, and they never look at it again until they need it," McChristian said.
Here are a few tips that will help even the least knowledgeable insurance consumers have better judgement when purchasing or reviewing their coverage headed into the hurricane season.
Check Your Homeowner's Declaration Page
The declaration page, or "DEC page" as it is also referred to, of an insurance policy is a good place to start to get a snapshot of what coverage is included in a policy. It'll include the insurance company's contact information, which is useful when a claim needs to be filed; what is covered in the policy; how much is covered; and how much the deductibles will be.
In most states that are "high-hazard zones" or areas where homeowners are more susceptible to high-risk events such as hurricanes, the dollar amount of a hurricane deductible should be listed. It's important for people to know that this number is usually a percentage as opposed to a flat rate, McChristian said.
Flood Insurance Doesn't Cover Everything
As part of FEMA's definition of what a flood is, two or more properties have to be underwater. According to McChristian, it's important to know this definition because this is what insurance companies use to determine what is covered.
This is why water damage from rainfall is not protected by flood insurance, but rather homeowner's insurance. Let's say a tree falls on your house (due to high-speed winds that are whipping around) and rain pours in. Knowing which policy covers what damage can help expedite the claims process to recoup people's losses so they're not spending time trying to figure out what coverage they have.
Another misconception of what flood insurance covers is sewage backup. Most insurance companies require people to purchase separate policies in this case, Whittle said.
Policies Usually Take Time to Take Effect
The effective date or when people actually become protected under a policy varies, so McChristian suggests people do research to know when their policies kick in.
The National Flood Insurance Program makes people wait 30 days before the policies go into effect so that people actually pay for insurance and not just wait for when "the creek starts to rise," McChristian said.
For those who do wait too late, people can look toward the private sector to the growing number of private insurance companies that have begun offering flood insurance.
However, this doesn't mean that you'll get a policy in time. These private insurers will assess the risk associated with your home based off the location, vulnerability and history of the place, and if the companies deem the risk too high, you're going to have to ride out the storm.
"People need to understand insurance is risk-transfer," McChristian said. "You are paying for companies to take risk away from you."
Know Your Policy's Trigger if There Is an Insurance DeductibleStates and insurance companies can have different triggers, which are specifications that have to be met before a hurricane deductible can take effect.
Triggers can come in many forms such as when a tropical storm is upgraded to a hurricane, when a storm is officially named, when a hurricane reaches a certain category level or when a warning or watch is declared, according to the Insurance Information Institute. Triggers can change to be more or less lenient based on how much of a premium you pay as well.
These deductibles can also be time-sensitive so check with your agent to know when your deductible kicks in.
Choosing between comprehensive and collision-only auto insurance plans can be tricky for people who might think the value of their car is not worth getting complete coverage.
But when it comes to storm damage, comprehensive plans are the way to go to protect a car against them, McChristian said, adding that only comprehensive coverage will cover you in the event your car gets washed away in a flood or if a tree falls on it.
Different Insurance Options for Hurricane Protection
Before purchasing different policies, McChristian suggests people understand their risk.
"This is something people fail to do," she said. "They think that because it has never flooded where they live before, it could never ever flood there."
Insurance agents will know the risk in the area and can help people understand what policies are best for them. If people want to do some research on their own, most county websites have maps that outline which areas are prone to flooding.
Whittle advises people who do have policies to make sure they have an adequate amount of coverage to pay for rebuilding a home, replacing its contents and provide additional living expenses in case people have to live somewhere else while their homes are rebuilt.
In those high-hazard zones, which mostly include coastal communities in 19 states and D.C., private insurance companies might not want to offer flood or windstorm insurance because of the high risks there. In those cases, government agencies can help.
The NFIP provides coverage for these areas for flood insurance while other entities like the Citizens Property Insurance Corporation in Florida provides property insurance. Fair Access to Insurance Requirements state-run plans are another avenue people who live in high-risk areas can explore for property insurance.
Purchasing insurance is not an exact science. Whittle says the coverage people want hinges on their own view of what their risk is and how much of a premium they are willing to pay.
Policies are tailored to an individual's specific needs, so doing research on what company and coverage is best for you will be key to make sure you're prepared this hurricane season.