Is Your Home Insured for the RIGHT Natural Disasters?
Here’s the bad news: If a natural disaster struck today, the damage it caused might not be covered by your homeowners’ insurance. In a worst-case scenario, this could leave you with an unlivable home and no money for repairs.
Here’s the good news: Figuring out which coverage you should add to your policy is super simple and might be more affordable than you think. We’ll show you how—starting with why.
Why the Cause of Loss Is So Important When Determining Homeowners Coverage
After a claim is filed against your homeowners’ policy, the first step an adjuster will take is to determine whether coverage is in place.
And the single most important piece of information they’ll utilize is called the proximate cause—or, what originated the damage. This might not always be straightforward, though.
An example: A torrential rainstorm passed through your area and caused widespread flooding. Rising water on your property shorted an electrical connection, which sparked a fire and burned down your home.
Fire is typically a covered peril (i.e., the cause of loss), even on a bare-bones homeowners policy. However, coverage for a flood is rarely—if ever—automatically in place, even on policies with maximum coverage. And since flood is what initially caused the damage in this scenario, you might be left without coverage.
Another quick example: Let’s say an earthquake occurs, which causes a utility pole to fall on your home and results in significant roof damage. It rains later the same day before sufficient repairs are made, resulting in water damage to your interior.
Although ‘falling objects’ is typically a covered peril under homeowners’ policies, an earthquake is not. So, if a natural disaster-related claim like this occurred, you might be wind up footing the bill for much-needed repairs.
Given the importance of insuring against natural disaster-related causes of loss, how can you discern whether or not you’re adequately covered?
Two Steps for Finding Out Which Natural Disasters Your Homeowners Policy Covers
The natural disasters to which you’re exposed—and the coverage available under your homeowners’ policy—largely comes down two overarching factors: 1) the state in which you live and 2) your specific homeowners’ policy form and any attached endorsements:
If you live in a home at the top of a hill in Tucson, Arizona, floods, and hurricanes probably aren’t two natural disasters you’re especially concerned about. On the other hand, they might be two of you your biggest worries if you live near a waterway along the Gulf Coast.
As such, the first step is figuring out any natural disasters you might be susceptible to, which is something you almost certainly already understand. So, you’re halfway there!
The other half involves turning attention toward your homeowners’ policy and discerning if it provides sufficient coverage.
Step 2: What Coverage Is Available?
Without boring you to tears or overcomplicating our discussion, coverage available will almost wholly come down to the type of property you own or reside in, as well as the form on which your policy is written. Here are the most common, as well as the natural disasters they automatically insure against:
- HO-1 (Basic Form) – Fire, smoke, volcanic eruption
- HO-2 (Broad Form) – Adds falling objects, the weight of ice and snow
- HO-3 (Special) – This is the form most homeowners’ insurance policies are written on, and insures against all-natural disaster-related perils, except for those specifically excluded (see below)
- HO-4 (Renters Form) – The same broad form coverage as an HO-2
- HO-6 (Condo/Co-op) – The same broad form coverage as an HO-2
Although all homeowners’ policy forms specifically exclude property damage caused by flood and earthquake, these perils can often be re-added by paying for a separate endorsement. Except in the rarest of instances, natural disasters like landslide, mudslide, and sinkhole are not covered.
Worried about cost? Although gaining additional natural disaster coverage by changing from a bare-bones HO-1 form to an HO-3 could represent a drastic price increase, earthquake and flood endorsements are must-have in many parts of the country.
As such, while prices can vary widely depending on factors like the state in which you live and the value of your property, federal and state governments often underwrite these coverages to help keep costs relatively low.
But, the reality is that if you ever need to file a claim against a natural disaster coverage under your homeowners’ policy, they value it provides could pay off in dividends—regardless of the relatively small amount you have to pay in return.
To learn more, be sure to reach out to your insurance carrier or independent agent directly.