With all the resources we put into our homes, it’s almost impossible to think that an unforeseen disaster could take them away. Of course, we see that happening more and more to people all around the world. There were more billion-dollar weather disasters in the last decade than in any decade before, which is making it even more challenging to protect ourselves from the unexpected.
While we might naturally assume we’re in the clear if we have homeowners insurance, there are often unseen risks lurking in our policies that leave us exposed to things like floods, wind, water backup, or even cyber scams. In some areas of the country, protecting against these risks is becoming more difficult and more expensive.
So, how do we know if our homes are as protected as they should be?
Let’s walk through some of the most important elements of homeowner’s insurance policies, with guidance from Aryn Bates, CAPI, CPRIA, VP and Senior Business Development Executive for Marsh McLennan Agency in Cincinnati, Ohio. Aryn has over a decade of experience helping affluent families protect themselves from property and casualty risks and offers us action items that we can take to keep ourselves safe.
Review the Basics of Your Homeowners Policy
A good start is to verify key policy information.
Is Your Name and Address Accurate?
Confirm that your name and address are listed correctly on your policy. It may sound obvious, but agents often find errors like these, which can create major issues if you need to file a claim. If your home is owned by a trust or LLC, it is also important to ensure that the entity is properly listed on your policy.
Is Your Deductible Too Low?
Consider your deductible amount. It is not cost-effective to submit frequent small claims on your policy, so having a higher deductible will keep that from happening. It also lowers your premiums, which may be especially helpful if you or your property have a history of claims. Claims follow both the insured and the property for up to 6 years and can negatively impact your rates.
Is Your Insurance Company Stable?
Some companies struggle to pay out claims after large-scale disasters due to financial instability. Stick with A-rated or better insurers to ensure reliability.
Check for Missing or Insufficient Coverage
No one wants to find out they are uninsured or underinsured in the midst of a crisis, so review your policy now to avoid these common gaps.
Does Your Policy Cover Replacement Value?
This figure should reflect what it would cost to rebuild your home, not just its market value. “This replacement calculation is not the same as the Zestimate, or the market value of your home, and is typically higher than what you paid for the property,” according to Ms. Bates. Many standard policies cap the replacement cost or underinsure the home, making it hard to replace what you had using just the insurance proceeds. Be sure to update your coverage to reflect any improvements or renovations you have done that may not be reflected in your current coverage amount.
Do You Have Water Backup Coverage?
Many homeowners are shocked to learn that water backup coverage isn’t standard in most policies, and is instead an endorsement, or optional addition to coverage. “Imagine the damage a few inches of water from a backed-up floor drain or an overflowing second-floor toilet could cause. Without this endorsement, you’ll be paying out of pocket for the cleanup and repairs to mechanical systems, flooring, and belongings,” Bates says. Though it may be tempting to skip or skimp on this coverage to minimize premiums, the cost of adding it is far lower than the expense of dealing with the aftermath of water damage.
Are You Protected If You Have to Leave Your Home?
If a covered disaster forces you out of your home, Loss of Use Coverage pays for you to live somewhere comparable while repairs are made. Many policies set this limit too low, making it difficult to find suitable accommodations, especially if you need to remain in a particular school district. Some claims have taken up to 18 months to resolve, so ensure your policy provides enough coverage.
Are You Covered for Cyber Threats?
Cyber protection on your homeowner’s policy helps when you experience things like a computer attack, cyber extortion, online fraud, a data breach, or even cyberbullying. Cyber insurance endorsements can cover the costs of hiring professionals to repair or replace equipment, trace events, and respond legally, among other things. Bates advises everyone to consider this coverage, as it is affordable and is especially important for teenage or elderly family members who may be more vulnerable to cyber scams.
Prepare for Severe Weather in All Its Forms
Hurricanes, fires, and floods, oh my. When it comes to weather, the type of claim is paramount and not always obvious, so reviewing the nuances can help you confirm adequate coverage.
What is a Wind Claim vs. A Flood Claim?
A common insurance confusion is distinguishing between wind and flood damage. It’s a question that comes up around hurricanes since both winds and flooding are often present. If rain is driven into your home by wind, that’s wind-driven rain damage. If your roof is compromised due to wind, allowing water to enter, that’s considered water damage resulting from wind. Flooding, on the other hand, occurs when water inundates multiple properties or an area due to natural sources like rising rivers or heavy rainfall.
Are You Protected from Damage by Hurricanes?
The primary protection against hurricanes is wind insurance, which applies to roof, window, and structural repairs. While wind coverage is typically part of a standard homeowner policy, in wind-prone areas, it can be expensive and may come with its own higher deductible. It may even be excluded from the policy altogether, in which case homeowners would bear the full brunt of costs related to wind damage. Some newer homes are easier to insure because they meet modern building codes, but for older properties, Bates suggests investing in wind mitigation reports and considering upgrades to windows, doors, and storm shutters to improve insurability.
Are You Protected from Damage by Floods?
Flood coverage is not included in a typical homeowner policy and must be purchased separately. While homeowners in flood-prone areas should consider this essential coverage, flooding isn’t just a risk for coastal properties. Any homeowner can purchase flood insurance, and rates vary based on your location’s flood zone. Standard flood insurance policies, often purchased through the National Flood Insurance Program, provide up to $250,000 in building coverage and $100,000 in contents coverage (excluding basements). If you need additional protection, excess flood insurance is available.
Final Thoughts
Regularly reviewing your homeowner’s insurance policy isn’t just about saving money—it’s about ensuring you have the right protection when you need it most. Take the time to verify details, adjust coverage as necessary, and work with a knowledgeable agent who can help you navigate the complexities of home insurance. It’s a small effort that could save you significant financial and emotional distress in the future.
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