With two devastating hurricanes hitting the continental United States within weeks of each other, I begun to evaluate the coverage of my own homeowners insurance policy. High winds, torrential rain and the resulting flooding cause billions of dollars in damage has me wondering if my own home is adequately covered and you may be wondering the same.
A homeowners insurance policy protects your home and it’s contents from common damage or accidents. Hazard insurance is another common name for this type of policy. Homeowners insurance protects your home against damage from fire, wind, hail, theft, vandalism and more. However, your policy does not cover damage caused by flooding, earthquakes and some other types of natural or man-made disasters. Reviewing your policy to see any exclusions by your insurance company may be a good idea.
If there are exclusions in your policy that have a likelihood of damaging your home, it may be best to speak with your agent to find more adequate coverage. Your insurance agent can help explain coverage, exclusions and answer your questions.
Important items to know are that your policy only needs provide coverage to your home and any other structures on your property. By law, you do not need to carry more coverage than the rebuild cost. There are no advantages to carrying additional coverage. Many policies include extended replacement coverage. Extended replacement coverage extends your policy by 15% to 30% above the face value.
Flood insurance covers external damage done by water to your home. Many communities participate in the National Flood Insurance Program (NFIP) and insurance is available at a lower cost through the government and your provider. Flood insurance is required by FEMA in at-risk areas for flooding. If your home is located in a FEMA flood zone, your lender will require you to have flood insurance. However, that doesn’t mean you shouldn’t consider it. Any damage to your home resulting from flooding or mudslides is not covered by your homeowners insurance policy.
Flooding can happen to your home if you live close to a body of water or live on the side of a hill or mountain. Several years ago, a friend had his brand new home flooded during a large rainstorm that left him with over $25,000 in damages. The damage was not covered by his homeowners insurance policy. His home backs up to a mountain with a steep slope (and poor drainage). Consider your risk to determine if you should get flood insurance.
Earthquake insurance covers damage to your home caused by an earthquake. Fault lines don’t just exist from Washington to California. There are fault lines in the Midwest, Northeast and Alaska. An earthquake of 7.0 can cause catastrophic damage and some of these fault lines can produce earthquakes up to 10.0!
Research your specific area to determine if earthquake insurance would be a good investment. Some states like California have their own insurance programs to offer discounted rates to homeowners.
Because most of us pay our insurance monthly through our escrow account, it’s easy to forget that we should also shop around for it periodically. Dave Neal of Advance Insurance in Pleasant Grove, Utah, an independent insurance agent, recommends shopping around every three to five years. This will ensure you have adequate coverage and are getting the best rate. I also recommend shopping around if you are in the process of refinancing. Refinancing is an easy and convenient time to put a new policy in place. Be sure not to limit yourself to just your current insurance provider or the captive insurance agencies likes Allstate, State Farm, Farmers, etc. In many cases, an independent insurance agent can shop multiple providers for you at once. Plus, if your premium increases, you can easily switch to a different provider without changing agents.
In addition, shopping for car insurance at the same time is a good idea too. Bundling your insurance policies together with one insurance company can save you hundreds of dollars each year. Switching from my insurance company of 20 years and combining it with my homeowners policy, now saves me over $400 per year with identical coverage.
If you have more questions about homeowners insurance, let me know in the comments or through my contact page.