For many homeowners, the wake of a catastrophic storm can result in financial ruin. The culprit? Not properly insuring their homes for hurricane damage caused by winds, floods and storm surges with hurricane insurance.
This is an unforced error. A home is one of people's biggest investments. Making sure you possess the proper added insurance to help rebuild after an extreme weather event is a personal finance must-have.
"A hurricane can completely destroy a home and everything in it," said Leslie Kasperowicz, managing editor at Insurance.com. "The financial risks really can't be overstated."
Hurricane Insurance Season Kicks Off Now
This year's hurricane season began June 1 and runs through Nov. 30. And it's already spinning up. The first named storm, Tropical Storm Arlene, arrived on June 2. Fortunately, the storm never reached land.
The National Oceanic and Atmospheric Administration (NOA) predicts a near-normal 2023 hurricane season. But that still means five to nine storms could morph into hurricanes.
Insure Now: Risk Of Hurricane Damage Is Rising
The risk of damage to homes from hurricanes is rising. The danger is also expanding to more areas of the nation, according to data released earlier this year by First Street Foundation, a nonprofit analyzing climate risk.
Tropical cyclones will threaten 13.4 million more properties in 30 years, its model says. Hurricane landfalls are also expected to shift to more northern locations. In Florida alone, the number of properties that may be hit with a Category 5 hurricane could rise from 2.5 million this year to 4.1 million by 2053, says First Street Foundation.
Sure, climate change may amplify the risk of powerful storms. But the root cause of ever-larger insurance-related disasters is more people living near the coast, says Stephen Strader, associate professor of geography and the environment at Villanova University. He dubs this the "expanding bull's-eye effect."
So, now's the time to check your risk. And you must get the home casualty policies you need, says Steve Wilson, director of technical underwriting at Hippo Insurance.
"You need to determine, OK, what's my exposure?" said Wilson.
One in three homeowners have had damage to their homes caused by severe weather in the past 12 months, according to a Hippo report.
Your goal? Find any gaps in coverage. That includes for damage caused by wind or floods. And fill gaps now, just as you would caulk a leaky window.
Be Aware Of Homeowner Policy Exclusions
Homeowners often wrongly assume a standard homeowner's policy covers everything. They think that's all the coverage they need. That's not the case.
Kasperowicz ticks off three signs you're underinsured:
The first tipoff is inadequate basic homeowners' coverage. "You don't have enough coverage on your policy to completely replace your home and everything in it," said Kasperowicz. "It's very common for homeowners to have a dwelling coverage amount that's too low."
The next concern is no protection from hurricane wind damage. Many homeowner policies don't include damage caused by hurricane-force winds. Know if you live in a state where named storms can make landfall. You want to be covered for damage caused by wind blowing off your roof or breaking your windows. In that case, it's prudent to pay for the extra wind protection.
Windstorm coverage helps cover your home. But it also covers other structures and personal belongings. Coverage extends if damage is from hurricanes, hail, tornadoes or other windstorm events.
You'll usually have separate wind and hurricane deductibles on your windstorm policy, according to USAA, an insurer. Hurricane deductibles can be high, and you'll typically pay them to cover damage from a named storm. So-called hurricane deductibles are a percentage of your dwelling coverage, usually around 2%, according to Insurance.com
Lastly, be concerned if sandbags are your only defense against overland flooding. If a storm surge from the ocean flows into your living room or a one-in-a-thousand-years rainstorm floods your home's living space, your homeowner's policy won't cover it. "The big gap is flooding," said Kasperowicz. You need to get a separate flood policy.
A Widening Risk For Hurricane Insurance
Flooding is also becoming more common in areas that are not designated as a high-risk flood zone. Around 25% of the overall amount of flood claims come from moderate and low-risk flood areas, according to FreddieMac.
You can buy flood insurance through the National Flood Insurance Program (NFIP). You might also consider a private insurer that participates in a "write your own" program, Kasperowicz says. The cost will vary by location. Flood insurance has a standard deduction of $1,000, according to Insurance .com.
Don't Wait Until A Storm Is Brewing To Get Hurricane Insurance
If a storm is barreling toward your home, it's too late to get coverage for that storm. "You don't want to wait until a storm arrives or is on the way to get the right coverage," said Kasperowicz. Why? There's a 30-day waiting period for flood insurance, she says. As a result, "a new policy won't be set up in time."
And you'll likely not be able to get extra wind coverage as well. If you need to update or purchase a windstorm policy, there's typically a 16-day waiting period before your policy goes into effect, according to USAA. As a major storm approaches, some companies may temporarily suspend new coverage or policy changes for most types of property insurance. However, if you're buying a new home, your windstorm policy should be active on the day you buy coverage, USAA says.
Weigh Costs With Risk And Reward
Insuring a home against catastrophic events is not cheap. The average annual nationwide home insurance premium is $2,777 for $300,000 in dwelling and liability coverage and a $1,000 deductible, according to Insurance.com. And the cost rises in areas more vulnerable to hurricanes. The average rate in Florida, for example, is $4,218 a year for the same coverage plus the 2% additional hurricane deductible.
Despite the rising costs, it doesn't make sense to skip the added coverage you need because you don't want to spend the money, adds Hippo's Wilson.
He's not saying ignore price. But rather prioritize and protect your most valuable asset.
"There are times when people think, 'Hey, I can save a little bit of money on my insurance,' but the trade-off of saving of a few hundred or a few thousand dollars isn't worth it if a hurricane hits and you're not adequately covered," said Wilson.
"In the thousands of homes (I've done claims on), I've never had a person say, 'I wished I'd bought less insurance.' We're not talking about $5,000 in damage. We're talking about your house potentially being gone," he said.
