Natural disasters are intensifying. Is your insurance policy sufficient?

The prevalence and intensity of storms, wildfires, floods and tornadoes not only threaten people's safety, but can also cause heavy damage to homes.

A recent analysis by Redfin real estate brokerage of housing records and ClimateCheck data found that vacation homes are particularly susceptible to natural disasters. Purchases of second homes with a high flood risk rose 45% between 2020 and 2021, while purchases of second homes with high storm risk rose 40% during that same period.

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Owners of primary residences and second homes may not clearly understand their homeowner's insurance policy as it relates to damage from a natural disaster.

We asked two experts for advice on insurance and natural disasters: Bob Hertel, director of product development for Acuity Insurance in Sheboygan Falls Town, Wis., and Darren Wood, president of Recoop Disaster Insurance in Des Moines. Both responded via email and their responses were edited.

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Q: What are some common natural disasters and average costs to homes of those disasters?

Hertel: Common natural disasters are different depending on where you live. Average claims costs vary widely based on the type of disaster. Based on Acuity claims data, the average cost of a wind or hail claim is generally below $15,000. However, wildfire claims are significantly higher, often reaching hundreds of thousands of dollars.

Wood: The average exposure for severe natural disaster events such as hurricanes with storm surge, wildfires, tornadoes, earthquakes, gas explosions, winter storms and dust storms is $54,000.

Q: Are most of these issues covered by homeowner's insurance?

Hertel: Damage caused by wind, hail and fire are generally covered by a standard homeowner's insurance policy, including losses from wildfires and tornadoes. Losses caused by flooding or earth movement, such as earthquakes or landslides, are not covered by a standard homeowner's policy. Special endorsements can be added to a standard homeowner's policy to protect against earthquakes or landslides. Your insurance agent may be able to offer you flood insurance through the National Flood Insurance Program.

Wood: Yes, but there are gaps in coverage. For example, certain disasters like earthquakes and storm surges are not usually included in standard homeowner's policies, so you could be on the hook for covering those damages on your own. Other common gaps include things like depreciation of your roof's value, high deductibles for disasters like hurricanes and variances in your home's replacement value versus its market value that create out-of-pocket costs consumers must cover from their wallets. Plus, with typical insurance, people could be stuck waiting up to 30 days before getting paid after submitting a claim. That can feel like an eternity if your home is severely damaged or uninhabitable.

Q: What's the difference between market value, extended replacement and guaranteed replacement homeowner's insurance coverage?

Hertel: As the cost of building resources and labor recently have increased dramatically, one important coverage to consider is guaranteed replacement cost, which ensures you will not be on the hook for the difference between your homeowners insurance policy limit and the actual cost to rebuild.

Here is an example of the significance of guaranteed replacement cost coverage. Assume a home is insured with a dwelling limit of $550,000. This home is later destroyed by a tornado. After the tornado, building supplies and construction labor are in short supply, causing reconstruction costs to reach $1 million to rebuild the same house. With guaranteed replacement cost coverage, the insurance provider would pay $1 million to reconstruct the house; without guaranteed replacement cost coverage, the homeowner would need to pay all or a portion of the additional $450,000 to rebuild.

Wood: Most extended replacement policies are capped up to 125% based on a home's insured value. The average homeowner may be on the hook for as much as 2 to 20% of their home's value because these policies are based on market value, not replacement cost, which we know is quite high these days.

Q: Is it typical for insurance to cover relocating temporarily if the house needs extensive repair?

Hertel: Yes. A standard homeowner's policy includes coverage for living expenses if your primary home is not fit to live in because of a covered natural disaster. Depending on the damage, this could include a short-term hotel stay or longer-term housing while your home is restored or even rebuilt.

Q: Is an umbrella insurance policy helpful in the case of a natural disaster?

Hertel: No, an umbrella policy does not provide added protection from natural disasters. An umbrella policy provides excess liability insurance for injury or property damage you cause to others.

In the case of a natural disaster, property insurance - not liability insurance - is needed to cover the damage.

Q: Any other tips for homeowners around natural disasters and insurance?

Hertel: It's important to make sure you understand what natural disasters are covered by your homeowner's policy. If you live in an area prone to flooding or earthquakes, you may need additional insurance protection. It also is important to check your policy limits, which determines the maximum amount your insurance will pay. Your insurance agent can help make sure you have the right coverage and limits.

Wood: Recoop Disaster Insurance is a multi-peril disaster insurance coverage that pays a lump-sum cash benefit (up to $25,000) following a covered natural disaster, including hurricane (with storm surge), wildfire, tornado, earthquake, gas explosion, winter storm or dust storm. Your premium is based on the amount of coverage purchased and the level of risk for your area. Recoop Disaster Insurance isn't designed to replace your homeowner's or renters' policy; it is designed to work with it and exists to cover the gaps left by most homeowner's insurance policies in the wake of a natural disaster. After a disaster, you reach out to Recoop directly to answer a few questions, submit photos of your home for proof of loss and then the claim is reviewed. If everything is in order, the payment comes within 24 to 48 hours of claim approval.

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