Disasters: Are You Covered?

Common Questions Asked by Homeowners about Insurance

If a fire, flood, earthquake, or some other natural disaster were to destroy or damage your home, would you have the right insurance coverage to rebuild your house?

This brochure, based on the questions consumers most frequently ask, explains what is covered in a standard homeowners policy and what is not. Where gaps in coverage exist, it tells you how to fill them.

To simplify explanations, we assume that you have a policy known as Homeowners-3 (HO-3), the most common homeowners policy in the United States. Find out what type of homeowners policy you have. If you have a different policy, you should review your options in question #17.

QUESTION # 1: AM I COVERED FOR DIRECT LOSSES DUE TO FIRE, LIGHTNING, TORNADOES, WIND STORMS, HAIL, EXPLOSIONS, SMOKE, VANDALISM AND THEFT?

Answer: Yes. The HO-3 provides broad coverage for these and other disasters or “perils,” as they are called in the policy, including all those listed in the question. You should check the dollar limits of insurance in your policy and make sure you are comfortable with the amount of insurance you have for specific items. Also, if you live near the Atlantic or Gulf coasts there may be some restrictions on your coverage for wind damage. Ask your agent about windstorm/hurricane deductibles. In areas prone to hailstorms, you may have a specific hail damage deductible.

QUESTION # 2: ARE MY JEWELRY AND OTHER VALUABLES COVERED?

Answer: The standard policy provides only from $1,000 to $2,000 for theft of jewelry. If your jewelry is worth a lot more, you should purchase higher limits. You may wish to add a floater to your policy to cover specific pieces of jewelry and other expensive possessions such as paintings, electronic equipment, stamp collections or silverware, for example. The floater will provide both higher limits and protect you from additional risks, not covered in your normal policy.

QUESTION # 3: IF MY HOUSE IS TOTALLY DESTROYED IN A FIRE AND I HAVE $150,000 WORTH OF INSURANCE TO COVER THE STRUCTURE, WILL THIS BE ENOUGH TO REBUILD MY HOME?

Answer: If the cost of rebuilding your home is equal to or less than $150,000 you would have enough coverage. The HO-3 policy pays for structural damage on a replacement cost basis. If the cost of replacing your home is, say, $120,000, then that is all the insurance you need. On the other hand if the cost of rebuilding your home is $180,000, then you will be short $30,000.

If you live in an area that is frequently hit by major storms, ask you insurance company about an extended or guaranteed replacement cost policy. This will provide a certain amount over the policy limit to rebuild your home so that if building costs go up unexpectedly, due to high demand for contractors and materials, you will have extra funds to cover the bill.

If you choose not to rebuild your home, you will receive the replacement cost of your home, less depreciation. This is called actual cash value. You should make sure that the amount of insurance you have will cover the cost of rebuilding your house. You can find out what this cost is by talking to your real estate agent or builders in your area.

Do not use the price of your house as the basis for the amount of insurance you purchase. The market price of your house includes the value of the land on which the house is situated. In almost all cases, the land will still be there after a disaster, so you do not need to insure it. You only need to insure the structure.

QUESTION # 4: AM I COVERED FOR FLOOD DAMAGE?

Answer: No. So, if you live in a flood-prone area it may be wise to purchase flood insurance. Flood insurance is provided by the federal government, under a program run by the Federal Insurance Administration. In some parts of the country, homes can be damaged or destroyed by mudslides. This risk is also covered under flood policies. Contact your agent or company representative to get this insurance or call the Federal Emergency Management Agency at 1-800-427-4661 or visit its Web site atwww.fema.gov.

QUESTION # 5: A PIPE BURSTS AND WATER FLOWS ALL OVER MY FLOORS. AM I COVERED?

Answer: Yes. The HO-3 covers you for accidental discharge of water from a plumbing system. You should check your plumbing and heating systems once a year. While you are covered for damage, who needs the mess and hassle?

QUESTION # 6: WHAT IF WATER SEEPS INTO MY BASEMENT FROM THE GROUND, AM I COVERED?

Answer: No. Water seepage is excluded under the HO-3. And if the water seepage is not due to a flood you will not be covered under a flood policy. Seepage is viewed as a maintenance issue and is not covered by insurance. You should see a contractor about waterproofing your basement.

QUESTION # 7: AM I COVERED FOR EARTHQUAKE DAMAGE?

Answer: No. Earthquake coverage is sold as additional coverage to the homeowners policy. To find out whether you should buy this insurance, talk to your agent or company representative. The cost of this coverage can vary significantly from one area to another, depending on the likelihood of a major earthquake.

QUESTION # 8: A NEIGHBOR SLIPS ON MY SIDEWALK OR FALLS DOWN MY PORCH STEPS AND THREATENS TO TAKE ME TO COURT FOR DAMAGES. DOES MY POLICY PROTECT ME?

Answer: Yes. The policy will pay for damages, if a fall or other accident on your property is the result of your negligence. It will also pay for the legal costs of defending you against a claim. Also, the medical payments part of your homeowners policy will cover medical expenses, if a neighbor or guest is injured on your property. You should check to see how much liability protection you have. The standard amount is $100,000. If you feel you need more, consider purchasing higher limits.

QUESTION # 9: A TREE FALLS AND DAMAGES MY ROOF DURING A STORM. AM I COVERED?

Answer: Yes. You are covered for the damage to your roof. You are also covered for the removal of the tree, generally up to a $500 limit. You should cut down dead or dying trees close to your house and prune branches that are near your house. It's true that your insurance covers damage, but falling trees and branches can also injure your family.

QUESTION # 10: DURING A STORM, A TREE FALLS BUT DOES NO DAMAGE TO MY PROPERTY. AM I COVERED FOR THE COST OF REMOVING THE TREE?

Answer: Your trees and shrubs are covered for losses due to risks like vandalism, theft and fire, but not wind damage. However, if a fallen tree blocks access to your home you may be covered for its removal. Decide if you need extra insurance for the trees, plants and shrubs on your property. You may be able to purchase extra insurance, which will not only cover the cost of removing fallen trees, but will also cover the cost of replacing trees, and other plants.

QUESTION # 11: IF A STORM CAUSES A POWER OUTAGE AND ALL THE FOOD IN MY REFRIGERATOR OR FREEZER IS SPOILED AND MUST BE THROWN OUT, CAN I MAKE A CLAIM?

Answer: The general answer is no. However, there are a number of exceptions. In some states, food spoilage is covered under the homeowners policy. In addition, if the power loss is due to a break in a power line on or close to your property, you may be covered. You should check with your agent to find out whether you are covered for food spoilage in your state. If not, you can add food spoilage coverage to your policy for an additional premium.

QUESTION # 12: I HAVE CHILDREN AWAY AT COLLEGE. ARE THEY COVERED BY MY HOMEOWNERS INSURANCE?

Answer: If they’re full-time college students and part of your household, your insurance generally provides some coverage in a dorm, typically 10 percent of the contents limit. If they live off campus, some companies may not provide this limited coverage if the apartment is rented in the student’s name.

QUESTION # 13: MY GOLF CLUBS ARE STOLEN FROM THE TRUNK OF MY CAR. DOES MY HOMEOWNERS POLICY COVER THE LOSS?

Answer: Yes. The HO-3 covers your personal property while it is anywhere in the world. However, if your golf clubs are old, you will only get their current value, which may not be enough to purchase a new set. Consider buying a replacement cost endorsement for your personal property. This way you will get what it costs to replace the golf clubs, less the applicable deductible.

QUESTION # 14: I HAVE A SMALL POWER BOAT. IF IT IS STOLEN, AM I COVERED? WHAT IF THERE IS A BOATING ACCIDENT AND I GET SUED? AM I COVERED FOR THAT?

Answer: Whether or not you are covered for either theft or liability depends on the size of the boat, the horsepower of the engine and your insurance company. Coverage for small boats under homeowners policies varies significantly. Ask your insurance representative whether you need a Boatowners policy.

QUESTION # 15: MY HOUSE IS CLOSE TO THE OCEAN. I’VE HEARD THAT IF IT IS DESTROYED BY THE WIND, THE TOWN'S NEW BUILDING CODE REQUIRES ME TO REBUILD THE HOUSE ON STILTS. THIS WILL ADD $30,000 TO THE COST OF REBUILDING MY HOUSE. AM I COVERED FOR THIS EXTRA COST?

Answer: No. The HO-3 excludes costs caused by ordinances or laws that regulate the construction of buildings. You can purchase an Ordinance or Law endorsement. This will cover the extra costs involved in meeting new building codes.

QUESTION # 16: AM I COVERED FOR “ACTS OF GOD”?

Answer: Sometimes. The term “Acts of God” is not specifically mentioned in homeowners insurance policies. It usually refers to natural disasters like hurricanes and tornadoes, as opposed to man-made acts, like theft and auto accidents. Some natural disasters, such as damage from windstorms, hail, lightning and volcanic eruptions, are covered under homeowners insurance. Damage from floods and earthquakes is not.

QUESTION # 17: WHAT SHOULD I DO IF MY POLICY PROVIDES LESS COVERAGE THAN THE HO-3?

Answer: Review your coverage with your agent. Some older policies provide less coverage than the HO-3. They may not provide coverage for water damage, theft, or liability. They may also provide coverage for the house on an actual cash value basis, rather than a replacement cost basis.

Actual Cash Value means replacement cost less depreciation. For example, if your roof is destroyed in a storm, the insurance will only pay for the cost of a new roof less the amount of depreciation of the old roof. If your roof was in great shape, this deduction will not be large. However, if the roof was old and worn out, the deduction for depreciation may be significant. You should try to get an HO-3.

For more information, contact your agent or company representative. You can also visit: Insurance Information Institute

This brochure was reviewed by the Cooperative State Research, Education, and Extension Service, USDA. For additional assistance with homeownership questions, contact your County Extension office listed under County Government in your local telephone directory.

Making Sure Your Home Is Properly Covered for a Disaster

For many people, their home is their greatest asset. Yet studies show that 59 percent of today’s homes are underinsured by an average of 22 percent (according to Marshall & Swift). To protect their investment from disasters, homeowners should update their insurance regularly to include improvements, major purchases and increased rebuilding costs.

In particular, the cost of building or repairing a home has increased dramatically in recent years. According to the U.S. Census Bureau, homeowners spent over $218 billion on additions, alterations, maintenance and repairs in 2005, up from $201 billion in 2004. Materials like lumber, cement, gypsum and structural steel products have become scarcer, not only because of the devastation from last year’s storms, but also because of increased global demand. In fact, the cost of lumber climbed 6.1 percent in 2005, according to statistics from the U.S. Department of Labor.

To properly insure your home, it is important to ask your insurance agent or company representative four key questions.

1. Do I have enough insurance to rebuild my home?

Your policy needs to cover the cost of rebuilding your home at current construction costs. Unfortunately, some homeowners simply purchase enough insurance protection to satisfy their mortgage lender. Others confuse the real estate value of their home with what it would cost to rebuild it. Quite simply, you should have enough insurance to rebuild your home in the event that it is completely destroyed. Be sure to consider the following:

• Replacement Cost
  Most policies cover replacement cost for damage to the structure. A replacement cost policy pays for the repair or replacement of damaged property with materials of similar kind and quality.



• Extended Replacement Cost
  This type of policy provides additional insurance coverage of 20 percent or more over the limits in your policy, which can be critical if there is a widespread disaster that pushes up the cost of building materials and labor.



• Inflation Guard
  This coverage automatically adjusts the rebuilding costs of your home to reflect changes in construction costs. Find out if your policy includes this coverage or if you have to purchase it separately.



• Ordinance or Law coverage
  If your home is badly damaged, you may be required to rebuild it to meet new (and often stricter) building codes. Ordinance or law coverage pays a specific amount toward these costs.



• Water Back-Up
  This coverage insures your property for damage from sewer or drain back-up. Most insurers offer it as an add-on to a standard policy.



• Flood Insurance
  Standard home insurance policies provide coverage for disasters such as fire, lightning and hurricanes. They do not include coverage for flood (including flooding from a hurricane). Flood insurance is available through the federal government’s National Flood Insurance Program (www.floodsmart.gov), but can be purchased from the same agent or company representative who provides you with your home or renters insurance. Make sure to purchase flood insurance for the structure of your house, as well as for the contents. Excess Flood Protection, which provides higher limits of coverage than the NFIP in the event of catastrophic loss by flooding, is available from some insurers. Keep in mind that there is a 30-day waiting period before the insurance is valid.

2. Do I have enough insurance to replace all of my possessions?

Most homeowners insurance policies provide coverage for your personal possessions for approximately 50 percent to 70 percent of the amount of insurance you have on the structure of your home. So if you have $100,000 worth of coverage on the structure of your home, you would be covered for $50,000 to $70,000 worth of the contents of your home, depending on the policy. Do an inventory of your home to determine if this is enough coverage for you.

You can insure your possessions in two ways: by their actual cash value or their replacement cost. Make sure you review with your agent or company representative which type of coverage is best for your particular situation.

• Cash Value Policy
  This coverage pays the cost of replacing your belongings minus depreciation.



• Replacement Cost Policy
  This coverage reimburses you for the full current cost of replacing your belongings.

3. Do I have enough coverage for additional living expenses?

Coverage for additional living expenses pays the extra costs of temporarily living away from your home if you can't live in it due to an insured disaster. It covers hotel bills, restaurant meals, transportation and other living expenses incurred while your home is inaccessible or being rebuilt. It is important to note that it covers only those expenses that are over and above your regular living expenses, so it would not cover your mortgage, or regular trips to the grocery store. If you rent out part of your house, this coverage also reimburses you for the rent that you would have collected from your tenant if your home had not been destroyed.

Make sure you know exactly how much coverage you have for additional living expenses, and whether there is a time limit. If the standard coverage is not adequate, it can generally be increased for an additional premium.

4. Do I have enough insurance to protect my assets?

Although not a key element in disaster planning, it is also important to have adequate liability protection. This covers you against lawsuits for bodily injury or property damage that you or your family members may cause to other people. It also pays for damage caused by pets. Liability insurance pays for both the cost of defending you in court and for any damages a court rules you must pay—up to the limits of your policy. Most homeowners insurance policies provide a minimum of $100,000 worth of liability insurance, but higher amounts are available.

It is important to purchase enough liability insurance to protect your assets. If the standard liability coverage in your homeowners policy is not sufficient, you may need an excess liability, or umbrella, policy, which provides additional coverage over and above what is covered in your home (and auto) insurance policy.

For more information visit: Insurance Information Institute (I.I.I)

Ten Ways to Reduce Your Homeowners Insurance Premium

Package Your Homeowner’s and Auto Policies Together
Many insurance companies give 5-15% discounts for customers who purchase insurance with them for both their home and auto.

Raise Your Deductible
Raising your deductible to the highest possible price you could pay should a loss occur could save you up to 37%. The higher the risk you assume, the less you will pay on your premium. When choosing the best deductible for you, please always be sure you can afford to pay your deductible should the need arise.

Typical deductible and discounts are approximately:

$500 – Save up to 12%
$1,000 – Save up to 24%
$2,500 – Save up to 30%
$5,000 – Save up to 37%


Make Your Home Disaster Resistant
If you own an older home, keeping its heating, pluming, roofing and electrical systems up-to-date will reduce your risk of water or fire damage. Find out from your insurance agent the best possible ways to make your home more resistant to natural disasters.

Establish Good Credit
By establishing and maintaining good credit, you will qualify for better rates. Keeping limits on credit cards low and always paying bills on time will improve credit scores.

Stay With the Same Insurance Company
By maintaining insurance with the same company for several years could qualify you for a 5-10% discount for long-term policy holders, depending upon the company.

Verify You Have the Correct Coverage Annually
Depending upon the valuables you have in your home, such as expensive jewelry and high-end computers, you may have requested additional coverage for such items. Always verify your coverage’s yearly to be sure you are not paying extra for items you either do not still own, or items that are not as valuable as they once were. You may want to cancel or reduce the amount of coverage you have on these items.

Check Around For Best Rate
When getting insurance quotes, always look around for the best rate. Be advised that though some quotes may be lower than others; always verify they have the correct coverage’s you need. Some companies will give you low premiums, with low coverage’s. Were you to have a total loss on your home, you want to be completely sure you have enough to rebuild completely should you need to.

Pay Electronically
Many companies now charge a mailing fee of up to $5 when sending out a customer’s bill. By making payments electronically, you will save yourself this charge and any additional fees they might add to mail out.

Be Sure Not To Include Land When Determining Coverage Amount
When obtaining homeowners insurance, do not include the value of land when deciding how much insurance coverage you want or need. Land is not considered in the rebuilding cost coverage’s as it will not be at risk from theft, fires, or any additional coverage’s included in your homeowners policy.

Purchase a Security System
By purchasing a security system for your home you could receive discounts for protection against fire and theft. Though these systems are often not cheap, over a period of time they could save you money. Always speak with your insurance agent about recommended systems, and how much you would save on your premium before making any purchases.


For more information visit: I.I.I, Financial Planning, and Money Central.