Homeowner's Insurance Guide to Natural Disasters

8/9/2019 Homeowner's Insurance Guide to Natural Disasters

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Table of ContentsCourting Disaster: Perils Discussed in this Guide ............................................................................4

Sources & Types o Homeowners Insurance: Know the Basics .......................................................7

Insurance Coverage: Know Your Choices ............................................................................................10

Ways You May Be Able to Aect Your Premium ...............................................................................14

Availability o Insurance .........................................................................................................................16

Reduce Potential Damages and Premiums ........................................................................................18

Preparing or a Flood ................................................................................................................................25

How Do I File a Homeowners Claim? ..................................................................................................32

Record Keeping ..........................................................................................................................................33

Some Final Thoughts ...............................................................................................................................33

Learning the Language: Glossary o Terms .......................................................................................34


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Courting Disaster:Perils Discussed in this Guide

EarthquakeAn earthquake is a sudden, rapid shaking o the Earth caused by the breaking and shiting

o rock beneath the Earths surace. The largest recorded earthquake in the U.S. was a magnitude

9.2 that struck Prince William Sound, Alaska, on Good Friday, March 28, 1964. Thankully,

not all earthquakes are o that magnitude. Whatever their intensity, these seismic events can

cause damage to property rom ground movement, re, or even sprinkler leakage.

FloodDevastating foods occur throughout the U.S. every year. Ninety percent o all presidentially

declared natural disasters involve fooding. Several actors contribute to fooding. The two

key elements are raina ll intensity and duration. Intensity is the rate o rainall, and duration is

how long the rain lasts. Topography, soil conditions, and ground cover also play an important

role. According to the National Flood Insurance Program (NFIP), foods cause billions o

dollars in property damage in the U.S. every year. Even more alarming, i you live in a high-

risk area, your home has a 26% chance o being damaged by fooding during the course o

your 30-year mortgage, compared to a 9 % chance o re.

HailThe largest hailstone ever recorded in the U.S. was ound ater a thunderstorm that pounded

south-central Nebraska on June 22, 2003. The stone, measuring seven inches wide and 18.75

inches around, was nearly the size o a soccer ball. Hail is the result o strong updrats in the

atmosphere that carry water droplets to heights where they then reeze and al l to the ground

as chunks o ice, also called stones. The larger the stones, the more harm they can cause to

people and property. Hail oten occurs in violent thunderstorms, along with lightning and

strong winds, but is also associated with tornadoes. Hail occurs most requently in the

southern and central plain states. However, since hail occurs with thunderstorms, the

possibility o hail damage exists throughout the U.S. In an average year, hail causes nearly

$2 billion in damage.

HurricaneA hurricane is a powerul tropical storm that measures several hundred miles in diameter.

Hurricanes need warm tropical oceans, moisture and light winds above them. I the right

conditions last long enough, a hurricane can produce violent winds, incredible waves, torrential

rains and foods. Deadly as well as destructive, hurricanes pose a threat to lie and property

rom wind, rain or food. The list o the most well-known and destruct ive storms include:

Hurricane Katrina in 2005, Hurricane Charley in 2004, and Hurricane Andrew in 1992.


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LightningOten the cause o res or damage to electrical systems and other parts o a house, lightning

is caused when storm clouds cool below a certain temperature, and positive and negative

electrical charges in the clouds water vapor separate rom top to bottom. Negative electrical

charges at the bottom o the cloud build in strength until a magnetic attraction causes those

particles to jump to positively charged particles accumulating at the ground. There are

thousands o lightning strikes in each state every year, and each has the potential to do great

harm to people and damage property.

Power OutagePower outages can occur in several waysweather related, or not. The short-circuiting o

electrical wiring, as in a lightning strike or a power overload, may interrupt electricity in your

home. Water seeping onto electrical wires or into junction boxes, or alling tree limbs break-

ing a power line can also cause an outage. Food spoilage is an obvious type o loss due to

power outages.

TornadoIn an average year, about 1,000 tornadoes are reported across the U.S., resulting in 80 deaths

and over 1,500 injuries. These violent storms can leave a swath o property damage and death

behind them. Tornadoes occur most requently in an area called Tornado Alley, a strip o

land running rom Texas north to Minnesota. However, tornadoes can occur in any state,

with wind speeds reaching 200 + miles per hour, torrential rain, hail and lightning.

Photo Courtesy PGT Indu


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WildreA wildre is an unplanned and uncontrolled re that occurs in the areas where woods and

homes overlap. These are not single home res, but larger restorms that can threaten

multiple homes, and typically burn many acres o orest. In an average year, 140,000 wildres

burn an average o 14.5 million acres. Wildres are not just a problem in Caliornia, Arizona,

or Texas, where recent outbreaks have brought national attention. Wildres have occurred in

nearly every state in the country.

Winter FreezeA lake-eect snowstorm in November 2000 dumped 25 inches o snow in 24 hours on

Bualo, New York. At its peak, snowall rates o three inches per hour were reported. Winter

reezes such as this can immobilize an entire region. Even areas that normally experience

mild winters can be hit with a major snowstorm or extreme cold. The impacts include

fooding, storm surge, closed highways, blocked roads, and downed power lines. Winter

reezes can damage your home in several ways, rom bursting water pipes to roo and wal l

damage resulting rom ice dams in gutters.


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Sources & Types o Homeowners Insurance

Know the BasicsLines o Insurance Whats Right For You?Several lines o insurance are available to cover various perils. The most appropriate

insurance or you depends primarily on your type o dwelling.

1. Owning a Home I you own a home, there are two policy orms that are available toyou: homeowners and dwelling orms. The main dierence between these two types o orms

is that the homeowners orm combines property coverage with liability coverage. Dwelling

orms only cover property losses. Both types o policy orms have the various peril coverageavailable or both your dwelling and your contents.

2. Owning a Manuactured Home There are policy orms specically designed tocover property or manuactured homes. This type o policy covers both dwelling as well

as contents.

3. Owning a Condominium Policies designed or condominium owners primarily covercontents. However, there is a small provision included to cover the portions o the dwelling

that are your insurance responsibility as dened by the governing rules o the condominium.

Generally, additional dwelling coverage may be purchased i the provision included in the

package is not sucient.

4. Renting a Residence I you are renting a residence, coverage or your contents isavailable through renters insurance.

5. Owning a Home on a Farm I your primary dwelling is on a arm or ranch, you maynot qualiy or standard homeowners insurance. A arm owners policy may be the most

appropriate orm to cover losses to your home as a result o tornadoes or hail. Additionally,

a arm owners orm provides coverage or both the personal and commercial exposure o

arms, and contains both property and liability coverage.

Two exceptions worth noting Earthquake and food policies typically needto be purchased separately, or as additional endorsements to your standard

policy, regardless o your dwelling type. The l imits o these policies can match

the homeowners or renters policy, or they can be set as separate limits. (For more

inormation on exceptions to food policies, seePreparing for a Flood, page 25.)


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Buying Insurance in the Voluntary MarketsGenerally, insurance may be purchased rom property casualty insurance companies through

the voluntary market, meaning that the insurance companies voluntarily provide coverage to

customers who meet the underwriting requirements. Availability and types o coverage can

vary across dierent states and companies, so consumers should research available coverage

or specic perils in their particular area, similar to the research they do when purchasingother types o insurance coverage, such as auto.

There are our main distribution systems that are employed by property casualty insurance

companies in the U.S.:

1. Independent Agency System Independent contractors who are usually ree torepresent multiple insurance companies.

2. Exclusive Agency System Independent contractors who may only representa single insurance company.

3. Direct Writer System Sales agents who are employees o the insurance companies.

4. Direct Response System Insurance is sold through direct mail, telephone or Internet.

Buying Insurance in the Shared MarketInvoluntary market mechanisms (sometimes reerred to as shared markets) have been

developed to provide coverage or entities that do not qualiy or coverage in the voluntary

market. There are many reasons why coverage may not be available through the voluntary

market in a particular place. Living in a high-risk area, such as a designated brushre zone,

near a coastline or a recent catastrophic event, may lead to reduced availability o coverage.

The ollowing kinds o property market mechanisms exist in certain areas:

1. Fair Access to Insurance Requirements (FAIR Plans) These plans make property

insurance available to persons who could not otherwise obtain it through the voluntarymarket. Coverage provided varies rom state to state.

2. Joint Underwriting Associations (JUA) These plans exist in only a ew states.How they are unded, and the available coverage will vary.

3. Beach and Windstorm Plans These plans exist in the coastal states, in the hurricanebelt o the Gul, and a long the South Atlantic coasts. Windstorm Plans provide the needed

coverage that is oten excluded rom voluntary insurer policies. Each coastal state rom Texas

to North Carolina (except Georgia) has a beach and windstorm pool to provide windstorm

coverage in the coastal areas. How these plans are unded and coverage provided varies by state.


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Although it is not truly an involuntary market mechanism or earthquake coverage, the

Caliornia Legislature established the Caliornia Earthquake Authority (CEA) as a privately

nanced and publicly managed risk bearer to help Caliornia residents protect themselvesagainst earthquake losses. The CEA is the worlds largest residential earthquake insurer, and

it collaborates with other organizations that operate in the public interest to help achieve the

CEAs goals.

In some states, market conditions have resulted in voluntary insurers not being able to

provide coverage at a reasonable cost in an area. In those circumstances, coverage may be

available through a FAIR plan. I, as a consumer, you nd that you are unable to obtain

insurance through the voluntary market, your insurance agent may work with you to help

you nd coverage through the involuntary market. Or you can contact the plans directly.

Because operation o these types o mechanisms var ies by locality, your state insurance

department is a good source o inormation on how to obtain coverage through the

involuntary market in your state.

Please visit www.naic.org/state_web_map.htm or your states insurance departments

contact inormation.


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What is a Covered Property?Generally, covered properties are divided into our separate categories. The denitions o the

property, and the extent o coverage vary by state, company and product. So it is important

or the consumer to understand the denitions o the covered property. The our separate

categories or your home, as dened by insurance companies, are:

1. Dwelling The structure o the house is considered a covered property.

2. Other Structures These are structures that are separate rom the house, or connectedto the house by a ence, wire or other orm o connection, but not otherwise attached to the

dwelling, such as a tool shed or detached garage.

3. Personal Property The contents o your home are your personal property. This includesurniture, appliances and clothing. Not all personal property is covered. Items more appro-

priately covered under dierent orms o insurance may have limited or no coverage or loss.

These items include, but are not limited to, money, jewelry and rearms.

4. Loss o Use When a loss occurs due to a covered peril and the dwelling becomes un-inhabitable, the cost o additional living expenses is covered. Reimbursement o additional

living expenses covers the cost to the insured or maintaining a normal standard o living.

Open Perils and Named Perils CoverageA peril, as reerred to in an insurance policy, is a cause o loss, such as re or thet. Coverage

can be provided on an all perils basis, or a named perils basis. Named Perils policies list

exactly what is covered by the policy, while Open Perils (or All Perils) policies will list what

is excluded rom coverage. Named Perils policies are general ly more restrictive. A dwelling

policy usually provides coverage or both the dwelling and contents on a named perils basis,

while a homeowners policy usually provides coverage or the dwelling on an al l perils basis,

and or the contents on a named perils basis.

Package Versus Peril-Specic CoverageA package policy provides coverage or multiple, but usually not all perils. A homeowners

policy, or example, is a package policy typically providing coverage or the perils o re, light-

ning, and extended coverage. Extended coverage includes coverage or the perils o windstorm,

hail, explosion, riot, civil commotion, aircrat, vehicles, smoke, vandalism, malicious mischie,

thet, and breakage o glass. Some policies, such as earthquake or food policies, provide cover-

age or specic perils that are oten excluded in package policies. Fire and sprinkler leakage

damage as a result o an earthquake may be covered by a standard homeowners policy. To

purchase the most appropriate insurance, it is important or you to consider what additional

perils you may ace. A nd, you should always veriy what is covered in your specic policy.

Insurance Coverage:

Know Your Choices


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Does My Policy Cover That?1. Earthquakes Most property insurance policies exclude coverage or losses resulting romearthquakes (although they oten cover losses related to res ollowing earthquakes). Separate

policies are typically required to ensure coverage against losses rom earthquakes. Some states

with risk o loss rom earthquakes have government mandated insurance plans that provideearthquake coverage to property owners who are unable to obtain insurance through the vol-

untary market. (See page 8 or explanation o voluntary and involuntary markets.)

2. Flood Most property insurance policies exclude coverage or losses resulting romfood. So unless you purchase a food policy, you do not have coverage or food losses. (For

a more comprehensive discussion o food insurance, please see Preparing for a Flood, page 25.)

3. Hail Most property insurance policies provide coverage or losses resulting rom hail.Hail is a named peril, meaning or coverage to apply under a Named Perils policy, hail must

be dened as a covered peril.

4. Hurricanes Most property insurance policies provide coverage or losses resulting rom

hurricanes, except or food loss associated with the hurricane. (SeePreparing for a Flood, page25, or more inormation.) However, some policies only provide limited coverage or hur-

ricanes, or require that a higher deductible be purchased specically or the hurricane peri l.

Most states with risk o loss rom hurricanes have government mandated insurance plans that

provide hurricane coverage to property owners who are unable to obtain insurance through

the voluntary market. (See page 8 or explanation o voluntary and involuntary markets.)

5. Tornadoes Most property insurance policies provide coverage or losses resulting romtornadoes (although they do not cover losses resulting rom the peril o food; see Preparing

for a Flood, page 25, or insurance availability). While tornadoes may not be specically men-

tioned as a covered orm o loss, tornado losses are one event covered under the broader term

windstorm. Windstorm includes tornadoes, straight-line winds and hurricanes. However,

there may be instances where coverages and deductibles may apply specically to hurricaneand not to all windstorms.

6. Wildfres All property insurance policies provide coverage or losses resulting romres. Depending on the level o exposure, you may need to consider a higher deductible to

obtain coverage, or keep it aordable. Most states have coverage available via the FAIR plan,

or a JUA, i the voluntary market is not willing to provide coverage.


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How Much Insurance Is Enough?Depending on the type o policy, the dierent dwelling coverage options could be:

1. Replacement Cost Coverage

2. Actual Cash Value

3. Special Payment -loss is paid beore dwelling is repaired, rebuilt or replaced.

4. Functional Replacement Cost or Market Value Coverage - repairs are made usingcommon, modern materials and methods without deduction or depreciation unless repairs

are not made, and i a total loss, the payment amount will be the market value o the home.

5. Stated Value - a selected value is established by the insured, and this value is the limito liability.

Depending on the coverage you select at the time o purchase o your policy, i you should

incur a loss, the settlement o that loss will vary. A loss can be settled based on a replacement

cost, repair cost, or actual cash value basis. Replacement cost is not the market value o your

home, nor is it the tax-assessed value. It is the cost to replace the damaged property, with no

reduction or depreciation o the damaged property. Actual cash value is the cost to replace

the damaged property reduced by an allowance or depreciation. Functional cost or market

value (also known as repair cost) is the cost to repair the damaged property with equivalent

construction or similar use. An example o unctional replacement would be to replace a

plaster wall with dry wall. I stated value coverage is selected, the maximum amount paid at

the time o loss is the value o the policy, even i the loss amount is larger than the value o

the policy.

Personal Property Coverage ChoicesDepending on type o policy, the dierent personal property coverage options could be:

1. Replacement Cost Coverage

2. Actual Cash Value

2


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What Does Insurance-to-Value Ratio Mean?This is the relationship o the amount o insurance purchased to the replacement value o the

property. It is important to have an accurate assessment o the replacement cost value o your

home. I you do not, and then have a loss, the cost to actually replace your home may be more

than your insurance policy will provide. That means you would be responsible or covering

the dierence. Major catastrophes, such as earthquakes, hurricanes, and wildres can oten

create a demand surge or materials and labor, resulting in increased costs to replace dam-

aged property. This must be considered when establishing the appropriate replacement cost

or your property.

Most property policies require that the property be insured to at least 80 % o the replacement

cost, or loss payments will be reduced by a proportion o the insured value to 80% o replace-

ment value. This is reerred to as the coinsurance penalty.

It is also important to real ize that other limits within your policy are a percentage o the

dwelling coverage amount. For example, the limit o coverage or your personal property will

usually be at 50% o the dwelling limit. Additional coverage is available via endorsement, and

is typically increased i you purchase replacement cost coverage or your contents.

Replacement Cost CoverageIn order to qualiy or replacement cost coverage, you will most likely be required to insure

your property to at least 80% o the replacement cost. As long as this requirement is met, and

i you have a total loss, your insurance policy will cover the total cost o replacing your home.

Further, i the property is not insured to at least the 80% value, then the payment or partial

losses may be reduced.

Additional Limits in Case o Total LossMany insurance companies oer an endorsement that will provide the ull coverage to replace

the property in the event o a total loss. Usually, the company requires that the property be

insured to at least 100% o the replacement cost o the property in order to qualiy or this ad-

ditional coverage. As long as this requirement is met, i you have a total loss and it costs moreto replace than your limit (rom a misestimate or demand surge), your insurance policy will

be increased. The amount o the increase depends on the endorsement purchased, and can be

anywhere rom 25% to 100%.

Optional CoveragesAdditional coverages may either be included in your policy, or available or a separate price.

Coverages like building code upgrades, which provide coverage or upgrades that the

community requires or building codes when a home is being repaired or rebuilt as a result

o a covered loss, may be available separately. Also, optional coverage or perils, such as earth-

quake insurance, is oten purchased to supplement a homeowners policy.


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Adjust The DeductibleA deductible is the amount o loss paid by the policyholder beore any loss is paid by the

insurer. The larger the deductible, the lower the premium.

A policy may have dierent deductibles based on the peri l o the loss. Many insurers are

selling homeowners insurance policies with percentage deductibles or storm damage instead

o the traditional dollar value deductibles that are used or other types o claims such as re

damage and thet. One o the more common percentage deductibles is the hurricane percent-age deductible, which applies to damage solely rom hurricanes. Thereore a policyholder

may have a $1,000 deductible or re losses, but a 2% deductible or hurricane losses. Hur-

ricane percentage deductibles can be very signicant. An earthquake policy could add a third

deductible that could very well dier rom al l deductibles in the homeowners policy or the

same property.

Ways You May Be Able To

Affect Your Premium

Dollar Deductibles The dollar value the insured must pay beore the insurance company

will pay the remainder o the claim. With a policy that has a $500 standard deductible, or

example, the policyholder must pay the rst $500 out o pocket. Some insurers are selling

policies with higher dollar deductibles or hurricane and earthquake damage. The higher

the deductible or a given policy, the lower the premium, since the insured is bearing more o

the risk.

Percentage Deductibles Percentage deductibles are based on the homes insured value.

So i a house is insured or $100,000 and has a 2% deductible, the rst $2,000 (or 2%

o the insurance value o $100,000) o a claim must be paid out o the policyholders pocket.

In many states, policyholders have the option o paying a higher premium i they would

rather have a traditional dollar deductible instead o a percentage one, or i they preer to

have a lower percentage deductible. Percentage deductibles are sometimes mandatory. Note

that with a percentage deductible, the dollar value changes as the insured value changes.


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Qualiy For DiscountsDiscounts vary widely by state and insurer. It is recommended that homeowners check the

prices o multiple insurance companies beore choosing a company to provide insurance

coverage. The ollowing list o potential discounts is not intended to be complete:

1. Discounts may be oered or purchasing home and auto insurance rom the same insurer.

2. Discounts may be available or homes with smoke detectors, burglar alarms,or dead-bolt locks.

3. Homes with sprinkler systems may also be eligible or discounts.

4. Discounts may be available or policyholders that are at least 55 years old and retired.

5. Some proessional, alumni, and business groups qual iy or discounts rom some insurers.

6. Sometimes insurers give discounts or long-term policyholders.

7. The extent to which the homeowner has protected the structure rom windstorm maymake the home eligible or discounts or shutters, superior roo construction and

connection, or other such mitigation techniques.

Take Care O Your Home1. Prior Loss A prior loss is one that has occurred to the home prior to applying orinsurance. The current owner o the home may or may not have been the owner o the home

at the time o the loss. The treatment o prior losses varies widely by insurer. The treatment

also varies widely by state. In certain areas, insurers may surcharge policies that have had a

prior loss within a certain period o time.

2. Repair o Existing Conditions Many insurers consider the existing condition o thehome when determining the premium or the policy and also the availability o certain cover-

ages or policies. Some insurers may provide a price break to policies where there has been

a recent roo renovation. Dierent roo types may also be eligible or a discount. Completerenovations o plumbing or electrical systems may be eligible or lower premiums.

3. Post Event It is the responsibility o the insured, and in the insureds interest, toreduce urther loss once an incident has occurred. For example, i a window is broken during

a hurricane, the insured should cover the window to prevent rain rom getting in the house.

The costs or these actions are usually covered by the insurer.


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Location Can Aect Availability and CostThe actual location o a property can be a primary determinant o insurance availability.

Homes located in areas with a greater exposure to losses due to a particular peril pay a

higher cost or coverage than areas not as exposed to that peril. For instance, homes in the

Midwest pay a higher cost or tornado coverage, and those with greater exposure to wildre,

such as designated brush zones in Caliornia, may have diculty nding coverage in the

voluntary market.

Another thing that aects the availability o insurance is pending event. For example, in

many cases, i a hurricane or a wildre is approaching, insurance companies issue temporary

moratoriums on binding coverage, and no new coverage can be written in that area

threatened by the peril.

Exposure to EarthquakesWhen living on or near major aults, homeowners are more exposed to earthquakes. Conse-

quently, they may nd ewer choices available to them or coverage against earthquakes. Also,

the soil type in certain areas may be more susceptible to earthquake damages or homes built

in these areas than or homes built in other areas. The closer an area is to a ault and the less

sti the soil is in an area, the ewer insurers may be willing to accept the risk o earthquakecoverage in that area.

Recent earthquake activity can a lso be a determinant o earthquake insurance availability.

As more earthquakes occur, more companies are likely to experience signicant cla ims rom

earthquakes, and subsequently become nancially distressed. These companies may nd

it dicult to provide coverage to the same volume o policyholders, and this can cause an

overall availability problem. In certain areas, state associations are established to ensure

insurance availability in times o need. These publicly run entities provide insurance coverage

when availability and aordability problems arise. (See section on voluntary and involuntary

markets on page 8.)

Exposure to HurricanesHomes in coastal areas in the southeast U.S. are more exposed to hurricanes than homes in

other areas, so homeowners in these areas may nd ewer choices available to them or cover-

age against hurricanes. The closer an area is to the coast and the urther south that area is,

the ewer insurers may be willing to accept the risk o hurricane coverage.

Similar to the eects earthquakes have had on insurance availability, storm activity can a lso

be a determinant o hurricane insurance availability. As storm and subsequent claim activity

rise, insurers may be inclined to write ewer policies. Here again, publicly run entities, created

to ll the gap, provide insurance coverage when availability and aordability problems occur.

Availability ofInsurance


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Your Homes Features Can Aect AvailabilityAn individual homeowner can encounter the same availability problems as mentioned above.

Additionally, i a home has unusually hazardous eatures, insurance companies may be

unwilling to provide coverage. Some o these eatures could be inerior construction, a

hazardous roo shape (or covering, such as wood shakes), an unbolted rame, an unsecured

chimney and/or water heater, external hazards such as awnings or other exterior

ornamentation, certain older structures not up to current code, and a general lack o

maintenance o the home.

Ensuring the Insurability o Your HomeHomeowners can ensure the insurability o their homes by keeping them up to the applicable

building codes, by perorming regular maintenance, and by implementing some o the loss

mitigation measures mentioned in the ollowing pages. Also, by keeping inormed o thechanges in the local insurance environment, homeowners can better evaluate the insurance

options available.

Photo Courtesy National Weather Se


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For Every Peril, Theres A Home ImprovementEarthquakeThe main areas o a home that could be improved to help mitigate damages and losses in the

event o an earthquake are oundation anchoring, water heaters, and cripple walls (i present).

Earthquake loss mitigation eorts should typically attempt to minimize the ability o a

structure to shit rom ground movement. Keeping the walls and oundation stable, and

preventing objects and xtures rom alling over are o utmost importance.

. Foundation Anchoring Depending on the construction o the home, a variety o

anchoring techniques are available to help secure the structure to its oundation in order

to reduce the eects o ground movement. The sill plate o the house should be securely

bolted to the oundation, and an assortment o hold downs exists to secure walls.

Consulting the local building department is recommended beore deciding what to do.

2. Water Heaters Unsecured water heaters are susceptible to alling over i not properly

secured. Strapping the water heater to wall studs, and having fexible gas and water lines

will signicantly reduce risks o re and water damage in the event o an earthquake.

. Cripple Walls Cripple walls are walls less than a story in height typically ound

between the rst foor o a building and its oundation. As these walls are oten made o

weak sheathing material, unbraced cripple walls can shit during an earthquake, and

this could result in signicant damage to the home and potential injury to the occu-

pants. One way to reduce this exposure to damage is to brace the cripple walls by adding

horizontal supports between the vertical studs at the top and bottom o the walls. Nails

should be added to ensure that the supports are securely attached.

HailHailstorms do not usually result in the catastrophic damage associated with windstorms

or re. However, hail does result in signicant damage to homes. The main area o a home

susceptible to hail damage is the roo. The ollowing are ways that can help mitigate damage

in the event o hail:

. Roo Covering The condition and materials o the roo covering can improve

the impact resistance. Worn asphalt shingles are especially vulnerable to hail damage.

Impact-resistant roo coverings designed and tested to improve roo perormance during

hailstorms are available.

Reduce Potential Damages

and Premiums


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2. Roo Decking The roo decking provides the structural support or the roo

covering. Solid roo decking improves the impact resistance o the roo. Material and

construction techniques can improve the stiness o the roo decking and help reduce

hail damage.

. Roo Slope Angling the roo reduces the orce o impact rom hail. Hai l hitting theroo at a 90-degree angle causes more damage than hail hitting the roo at an angle that

defects the orce o the hail.

HurricaneThe main areas o a home that could be improved to help mitigate damages and losses in

the event o a hurricane are the roo, the windows, the doors, and garage doors (i present).

Hurricane loss mitigation eorts should typically attempt to prevent a structure rom being

penetrated by the wind. Keeping the roo intact, and keeping the doors and windows sealed

shut are o utmost importance.

. Roo - The type and condition o roo can be a signicant actor in the amount odamage sustained by a structure in a hurricane. For instance, gable roos are more likely

to suer damage rom the high wind generated by hurricanes. Also, the quality o the

construction can aect the perormance o the roo in high winds. When the roo

decking is not properly attached to the roo rame, the roo may not survive high winds.

Loose shingles or tiles increase the susceptibility o the roo to high winds. Once the roo

structure is compromised, the integrity o the roong is weakened and the interior o the

house and its contents become susceptible to water damage or even the collapse o the

roo itsel. Loose tiles and shingles also become dangerous projectiles in the high winds.

2. Windows/Doors Impact-resistant windows and doors provide protection to the

homes envelope rom the combination o fying debris and the continuous pressure rom

high winds. Installing impact-resistant windows and doors, or installing impact-resistantcoverings like storm shutters, can prevent a breach o the home envelope, avoiding

catastrophic loss.

. Garage Doors Garage doors can pose a special risk during high winds i they are

not properly secured. Install ing horizontal bracing, replacing weak hinges, and providing

stronger center and end supports can reduce the likelihood o door ailure in the event o

a hurricane. It is a lso possible to install a stronger track or a garage door i the existing

track is loose. Another option is to install impact-resistant coverings.

Photo Courtesy National Weather Service


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LightningBecause lightning can strike anywhere, it is a good idea or every homeowner to consider

electrical protection devices on the interior and exterior o their home. Exterior devices mayrequire compliance with local building codes and ordinances. Interior devices, such as surge

protectors, are simple and practical ways to mitigate damage to most o the electric appliances

and electronics in your home.

. Surge Protective Devices To protect your electronics and electrical appliances rom

all but the most severe electrical surges or direct strikes, a good electrical grounding

system is essential. Surge protection devices should be installed at point-o-use to lessen

the risk o damage.

2. Lightning Protection Systems These installations provide a direct path or light-

ning to ollow to the ground, rather than through the house structure and its wir ing.

You should consult a qualied contractor or instal lation. Please note that lightning

protection systems will not protect a home against electrical damage or re rom light-ning that enters through the telephone, cable or electric lines to the house. Whole house

surge protection devices are needed or this protection.

. Whole House Surge Protection Systems These systems install on the electric meter

or the electrical panel to help protect the appliances and electronic equipment in your

house. Contact your local electric company or installation inormation. I the utility

company does not oer the service, a qualied electrician can install this device.

Photo Courtesy National Weather S


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Power OutageThere are numerous ways that your power can be disrupted. The best way to avoid losses due

to power outages is to be prepared. Regular inspections o interior and exterior electrical

wiring are a must. Although not inexpensive, alternate power sources, such as generators, are a

good idea, especially or those who rely on electricity to pump water rom their private wells.

. Electrical Inspections To protect against power outages, look or potential hazards,

such as tree limbs over power lines. An inspection by a licensed electrician or general

contractor or potential short circuits or other types o power ailures is another wise

precautionary step.

2. Alternate Power Sources To prevent or lessen the impact o a power outage, buy

a gas-powered generator. Just remember, it must remain outside the home due to the

poisonous gases it generates. You can a lso use a battery-based power source. Batteries

or radios and fashlights are an inexpensive and fexible power source.

. Avoid Spoilage Food spoilage is a very common loss due to power outages. Your

rerigerator should only be opened once when you need to take out ood or a meal.

Consuming rerigerated ood beore non-rerigerated ood will reduce ood spoilage.Packing rozen or other rerigerated oods into a cooler, and moving them to the rerig-

erator o a neighbor or relative who is unaected by the power outage is also helpul. In

winter months, snow in your yard can be compacted, or stacked, and used as a temporary

reezer or rerigerator. But be aware that liquids and other ood will reeze in snow.

TornadoThe main areas o a home that could be improved to help mitigate damages and losses in the

event o high winds associated with tornadoes are the roo, the windows, the doors, and garage

doors (i present). Tornado loss mitigation eorts should typically attempt to prevent a struc-

ture rom being penetrated by the wind. Keeping the roo intact, and keeping the doors and

windows sealed shut are o utmost importance.

. Roo - The type and condition o roo can be a signicant actor in the amount o

damage sustained by a structure in a tornado. For instance, gable roos are more likely

to suer damage rom the high wind generated by tornadoes. Also, the quality o the

construction can aect the perormance o the roo in high winds. When the roo

decking is not properly attached to the roo rame, the roo may not survive high winds.


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Loose shingles or tiles increase the susceptibility o the roo to high winds. Once the roo

structure is compromised, the integrity o the roong is weakened and the interior o the

house and its contents become susceptible to water damage or even the collapse o the

roo itsel. Loose tiles and shingles also become dangerous projectiles in the high winds.

2. Windows/Doors Impact-resistant windows and doors provide protection to the

homes envelope rom the combination o fying debris and the continuous pressure rom

high winds. Installing impact-resistant windows and doors, or installing impact-resistant

coverings like storm shutters, can prevent a breach o the home envelope, avoidingcatastrophic loss.

. Garage Doors Garage doors can pose a special risk during high winds i they are

not properly secured. Install ing horizontal bracing, replacing weak hinges, and providing

stronger center and end supports can reduce the likelihood o door ailure in the event

o a tornado. It is also possible to install a stronger track or a garage door i the existing

track is loose. Another option is to install impact-resistant coverings.

WildfreThe two main areas o a home that could be improved to help mitigate damages and losses

in the event o a wildre are the roo covering, and landscaping. Fire loss mitigation eorts

should typically attempt to prevent a structure rom catching re. Proper landscaping can

keep the re rom getting close enough to the structure to ignite it, while proper roo

covering can help prevent ignition rom foating embers.

. Roo Covering The type o roo covering will depend on the other perils a home

aces. Concrete or tile roos are very re resistant, but can be prone to hail damage. An

asphalt shingle with good re rating is oten the most cost-eective choice a homeowner

has. Wood shakes or shingles are to be avoided or homes exposed to wildre, as these

roos are the most re prone.

2. Landscaping Keep a clear re zone around a home. An area ree o brush, and with

vegetation that is less prone to re is a very eective way to protect the home rom re.

The type o vegetation appropriate or re saety will vary depending on the climate in yourarea o the country. It is also important to keep your yard ree o dead brush and leaves.

Photo Courtesy National Weather S


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Winter FreezeThe easiest and most eective way to reduce potential loss rom winter reeze is to conduct

regular maintenance on your home and property. You should be aware o the potential haz-

ards o seasonal temperature changes, and protect your home accordingly. The major areas o

concern should be gutters, outdoor aucets, the maintenance o appropriate indoor and attic

temperatures, as well as those landscape and hardscape eatures whose proximity to your

home might pose a winter reeze-related danger.

. Gutters To prevent or lessen the possible impact o a winter reeze, gutters should

be cleared o debris and fushed out with a garden hose. This will help prevent ice dams

rom orming at the base o the roo, and in the gutter area.

2. Outdoor Faucets The water supply to outdoor aucets should be shut o at a valve

inside the home. Outside pipes should be drained o all water. Faucets should be kept

open very slightly during extremely cold weather.

. Indoor Temperature The heat should be maintained in the home, even when it is

vacant during the day, or when you are away on vacation. This prevents the pipes rom

reezing. Your attic should be ventilated and remain nearly as cool as the outdoor

temperature. This will prevent the melting o ice associated with ice dams. You should

re-check the attic ventilation and temperature every year.

. Other Freeze Hazards You should also walk around your home, looking or other

sources o potential winter reeze problems. Be mindul o walls, gutters, ences, pipes,

sheds, garages, trees, shrubs, and walkways.

. Alternate Power Sources To prevent or lessen the impact o a power outage, buy

a gas-powered generator. Just remember, it must remain outside the home due to the

poisonous gases it generates. You can a lso use a battery-based power source. Batteries or

radios and fashl ights are an inexpensive and fexible power source.

. Avoid Spoilage Food spoilage is a very common loss due to power outages. Yourrerigerator should only be opened once when you need to take out ood or a meal. Con-

suming rerigerated ood beore non-rerigerated ood will reduce ood spoilage. Packing

rozen or other rerigerated oods into a cooler, and moving them to the rerigerator o

a neighbor or relative who is unaected by the power outage is also helpul. In winter

months, snow in your yard can be compacted, or stacked, and used as a temporary reezer

or rerigerator. But be aware that liquids and other ood will reeze in snow.


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Potential Premium Discounts For Loss MitigationSometimes insurance companies reward loss mitigation eorts by oering premium dis-

counts. Since loss mitigation may reduce the expected losses or the insurer, there may be a

lower premium charged. Such discounts or wildre mitigation are not common. With regard

to earthquake coverage, companies will oten oer premium discounts or rame anchoring,

securely strapping a water heater in place, or bracing cripple walls. Similarly, or hurricane

coverage, insurers may oer discounts or roo bracing, hurricane shutters and straps, and

retrotted doors.


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Flood coverage is usually not provided by typical property insurance policies, so it is most

likely that unless youve purchased a food insurance policy, you do not have coverage or

food losses.

Flood insurance is available through many dierent insurance companies, but the ederal

government, through the National Flood Insurance Program (NFIP), alone bears the risk.

According to the NFIP, a food is a temporary overfow o inland or tidal waters onto normally

dry land, or run-o water rom rain, etc. Floods also include mudfows onto dry land, and

water-caused erosion or collapse o land along a lake, pond, river or stream, which then resultsin the temporary overfow o water onto normally dry land. The food insurance products

that the NFIP oers are generally much more complicated than those oered by most other

property insurers. The NFIP owns the premiums paid by the food insurance customers and

they pay the claims and expenses o the program. The NFIP establishes one set o policy

terms and rates or the various food insurance policies. As a result, comparison-shopping

or food insurance is not necessary, but a buyer should careully discuss and review the

conditions and requirements o the applicable food insurance policy with his or her agent.

The NFIP has a Regular Program and an Emergency Program. A community can only

participate in the Regular Program i the community has adopted all local ordinances. For

example, a community will participate in the Emergency Program while it waits approval or

participation in the Regular Program. The Emergency Program is only available or a limitedamount o time and oers less coverage than the Regular Program. I the community has not

adopted all ordinances by the end o the limited period o time, it can no longer participate

in the NFIP. To nd out i your community participates in the NFIP, contact an agent that

writes food insurance, or go to the Federal Emergency Management Agency (FEMA) website

at www.ema.gov to see i your community (or county) is listed.

Preparing

for a Flood


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I you choose to purchase food insurance, you should know that it takes a minimum o 30

days or your food insurance policy to become eective, unless you are obtaining food

insurance in connection with purchasing a home or renancing a mortgage. It is prudent,

thereore, to purchase your food insurance well beore you need its protection. Also, depend-

ing on the type and location o the building being insured, you may have to complete certain

food insurance-specic orms, at least one o which (an Elevation Certicate) must becompleted by a qualied individual such as an engineer.

Available Flood Insurance PoliciesThe NFIP oers three food insurance policy orms. For each o the policies, contents

coverage is provided i purchased. Policy types vary based on how a building is occupied.

1. Dwelling Form Provides building coverage or residential buildings o no more thanour amilies or single-amily homes (including manuactured homes) including limited

coverage or detached garages. The NFIP also has a Preerred Risk Policy (PRP), using the

Dwelling Form, or those properties in low to moderate food risk areas. In order to qualiy

or the PRP, the property must be located outside the Special Flood Hazard Areas (SFHAs)and have no repetitive food losses. Due to the lower risk, premiums or PRPs are

substantially lower than or the standard Dwelling Form.

2. General Property Form Provides building coverage or nonresidential buildings,residential buildings o more than our amilies, manuactured homes, and residential

condominium buildings i the named insured is the condominium association (and then

coverage is provided only to the units owned in common by all unit owners).

3. Residential Condominium Building Association Policy (RCBAP) Providesbuilding coverage or the residential condominium building, including all units within the

building and improvements made within the individual units. Owners o individual units

can purchase building and contents coverage through the Dwelling Form.

How Flood Insurance is SoldThe NFIP sells food insurance primarily through the private insurance industry.

The Write Your Own (WYO) Program was established so that private insurers could sell food

insurance to their customers. This allows customers to have one point o contact or

all o their property insurance needs.

Ask your current insurance agent i he or she writes food insurance. I not, you can nd

an agent who writes food insurance in your area by going to the Floodsmart website at

www.foodsmart.gov, or by telephone (1-888-4FLOODS).


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What Choices o Coverage Do You Have?Coverage OverviewThe NFIP was created to provide a air way to protect individuals and businesses rom nan-

cial loss due to food damage. The NFIP covers direct physical loss to buildings and contents

due to food and costs associated with bringing a structure into compliance with local build-

ing ordinances, with limitations as explained below. Flood insurance coverage is subject to

exclusions, limits, and conditions or eligibility. Property not covered, as well as losses not

covered are explained in the policy. It is important to discuss the exclusions with your insur-

ance agent to determine the need or additional or alternative insurance coverage.

What is Covered by Flood InsuranceDirect physical losses rom food are covered. But, other food coverage is provided as well.

For example, loss caused by food related erosion is also covered. But, the erosion must be due

to unusually high water currents or waves, an unusual tidal surge, a severe storm, or a fash

food. Overfow o water or mud is also covered. I in doubt about types o loss covered, reer

to a food policy, or ask your insurance agent.

Coverage Provided by Flood InsuranceFlood insurance policies are separated into our coverage sections:

Coverage A - Building; also provides limited coverage or attached structures.

For example, or a garage to be covered, it must be unctioning as a garage.

Coverage B - Personal Property; has limitations on property in the basement. Coverage

or basement contents is only provided or items critical to the habitation o the dwelling,

such as heaters, air conditioners, and oil tanks.

Coverage C - Other Coverage; costs incurred to protect the property rom food damage.

(examples include: 1. Debris Removal, 2 . Loss Avoidance; a . Sandbags, b. Supplies

& Labor, and c. Transporting Property to Saety, and 3. Pollution Damage)

Coverage D - Increased Cost o Compliance; provides or the costs to comply with stateand local regulations concerning repair and reconstruction o food damaged properties.

Liability under Coverage D is limited to $30,000.


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Exclusions (what is not covered by Flood insurance)Property not covered by food policies includes personal property outside the enclosed building,

buildings or personal property in perilous locations aected by high tides, open buildings used

to house boats, and numerous other types o property and vehicles. An important exclusion

is loss resulting rom earth movement, even i caused by food. Exclusions are numerous,

detailed, and include loss o revenues or prots, loss o use o the property, and business

interruption losses. Again, remember to review your policy, to assure that you ully

understand the coverage and l imitations.

Deductibles (the portion o a claim that is not paid by insurance)The standard deductibles are $500 or most new construction and $1000 or older

construction (usually pre-1978). No deductibles apply to Coverage C and Coverage D.

Other deductibles are available ($5,000 or Residential, $25,000 or RCBAP and $50,000

or Nonresidential). Customers can select dierent deductibles or the building and the

contents; the deductibles apply separately.

Coinsurance Provision (requirement to purchase a defned minimumamount o insurance)The Residential Condominium Building Association Flood Policy requires that the insured

purchase coverage o at least 80% o the replacement cost o the subject building, but no more

than the maximum amount o insurance coverage available under the NFIP. This requirement

does not apply to the Dwelling and General Property Forms. NFIP coinsurance provisions

may dier rom those in other property insurance policies, such as a homeowners insurance

policy. Consult with your agent i you have any questions regarding coinsurance provisions.


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Coverage Limits AvailableThe ollowing table summarizes the maximum limits o coverage available under the Regular

and Emergency Flood Insurance Programs. I additional coverage is needed, you should reer

to your agent. The NFIP does not provide coverage above these limits.

Type o Coverage Regular Emergency

Residential Building $250,000* $35,000/ $100,000**

Residential Contents $100,000 $10,000

Non-residential Building $500,000 $100,000

Non-residential Contents $500,000 $100,000

*For RCBAP, total limit = $250,000 x # o units

**The higher limit shown applies to Alaska, Hawaii, Guam and the U.S. Virgin Islands.

Claim Settlement ProvisionClaims are settled on either a Replacement Cost Value (RCV) or Actual Cash Value (ACV)

basis. Replacement Cost Value is the cost to replace the damaged property, with no deduction

or depreciation o the damaged property. It is not to be conused with the tax basis valua-

tion or tax assessments, nor is it the market value o your home. Actual Cash Value is the

cost to replace your damaged property, reduced by an al lowance or depreciation.

The applicable claim settlement provision or the building depends on the type o risk:

. Single Family Homes:

Settled on a Replacement Cost Value basis i two conditions are met:

a. Primary Residence, andb. Insured to at least 80% o replacement cost, at the time o loss.

Otherwise, settled on an Actual Cash Value basis.

2. Residential Condominium Building Association Policy:

Settled on a Replacement Cost Value basis. But i youre insured to less than 80 % o

replacement cost, the coinsurance clause reduces the amount o payment.

. All Others:

Settled on an Actual Cash Value.

Actual Cash Value is the basis or adjusting all contents losses.


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Ways You May Be Able to Aect Your PremiumDeductibleThe deductible is the amount that must be paid by the policyholder beore any payment is

made by the NFIP. The larger the deductible you choose, the lesser your premium. However,you will bear a larger portion o any loss that may occur.

Community Rating System DiscountsThe NFIP has a Community Rating System (CRS) that provides premium discounts in those

communities that undertake foodplain activities beyond the basic requirements o the

National Flood Insurance Program. These discounts can be as much as 45% or buildings in

the foodplain and as much as 10% or buildings outside the foodplain. CRS discounts do

not apply to Preerred Risk Policies.

Availability O InsuranceWhat can Aect Availability o Flood Insurance in a Certain Area?Flood insurance in the U.S., as provided by the NFIP, is available in over 20,000 participating

communities through private insurance companies. Check with your insurance agent to nd

out i your community participates.

What can Aect Flood Insurance Availability or a Certain Home? You can buy food insurance i your home or business is located inside or outside o a food-

plain, with very limited exceptions, as long as it is located in a participating community.

The only homes restricted rom purchasing food insurance rom the NFIP are newer homes

located in certain environmentally sensitive coastal areas. Your insurance agent or localcommunity ocial should be able to tell you i there is such an area in your community.

0Photo Courtesy National Weather Ser


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Other Ways to Reduce Your Exposure to Flood LossesSummary o Loss Mitigation Devices/Home ImprovementsThe most important loss mitigation actor in reducing food risk is the elevation o the

structure. This means making sure that your home is at or above the projected food

elevation, a level that is commonly reerred to as the hundred-year food level.

Here are other things that can be done to help reduce uture food losses:

. Preservation by elevation. Raising the location o the main electrical switchbox,

electrical outlets, and appliances above the lowest foor level protects against some food

losses. Placing a heater and urnace on blocks also reduces exposure to foods.

2. A nger in the dike. I your sewer system doesnt have a backfow valve, hire a

licensed plumber to install one. Also, ask the plumber to check the unction o your

foating foor drain plug, or to install one, i one doesnt already exist.

. Anchors aweigh! Fuel tanks, such as propane tanks, may foat away, tip over, break,

or otherwise cause additional damage due to food waters. Check all tanks, and similar

items that may foat away and cause damage, and secure them in accordance with local

building codes.

. Take a look. Other ideas may arise when you inspect low-lying areas o your property,

which are exposed to food waters. You might also pay a plumber or building inspector to

do an inspection with an eye toward reducing food damage.

. Going up! I you rent, move to an upper foor.

Visit the Federal Alliance or Sae Homes, Inc. (FLASH) website at www.fash.org or

other inormation about reducing your exposure to food damage.


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I any covered peril damages or destroys your home, you will need to le a claim with your

insurance company. Promptly notiy your agent in writing. Remember, an insurance policy

is a contract between you and your insurance company. And, there are rules and procedures

that you and your insurer must ollow. Read your insurance policy to see what your responsi-

bilities are.

1. I you are the victim o a thet or your home has been vandalized or burglarized, report it

to the police. Get a police report and the names o all law enorcement ocers that you speakwith.

2. Insurance policies place a time limit on ling claims. Find out what the time limit is.Ask questions: Am I covered? Does my claim exceed my deductible? How long will it take

to process my claim? Will I need to obtain estimates or repairs to structural damage?

3. Take reasonable steps to protect your property rom urther damage. Save receipts orwhat you spend, and submit them to your insurance company or reimbursement.

4. You are going to need to substantiate your loss. Avoid throwing out damaged items untilthe adjuster has visited your home. You should also consider photographing or videotaping

the damage. Prepare a home inventory, make a copy or your adjuster and supply him or her

with copies o receipts rom damaged items.

5. I your home is severely damaged and you need to nd other accommodations whilerepairs are being made, keep records o all additional expenses incurred. Most homeowners

insurance policies provide coverage or the loss o use o their home. However, many

policies do NOT provide coverage or the additional living expense i a mandatory evacuation

is ordered and there is no loss to your home.

6. Once your insurance company has been notied o your claim, the company is required tosend the necessary claim orms to you by the end o a specied time period. (The time period

varies rom state to state.) Return the properly lled-out orms as soon as possible in order to

avoid delays.

7. Your insurance company will probably arrange or the adjuster to come and inspect yourhome. Cooperate with them as they gather inormation. The adjuster cannot approve your

claim, but the insurance company, in the determination o your claim, oten uses their report.

Once you and your insurance company agree on the terms o your settlement, state laws

require that you be sent payment promptly. In most cases, your claim will be processed

quickly. I you have any questions about the claim ling laws in your state, call your

insurance agent or your state department o insurance.

How Do I File a

Homeowners Claim?


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Know Your InsuranceIt is extremely important or you to thoroughly understand your homeowners insurance

policy. You should know what perils are covered, and whether the coverage amounts are su-cient in the event o a disaster. Your insurance agent should be more than willing to discuss

your specic insurance needs, as well as recommend possible ways to reduce your premiums,

or mitigate potential losses. But again, the responsibility is yours.

We hope you ound this guide to be a helpul resource in better understanding your property

insurance needs.

For more inormation, and other resources, please visit the Federal Alliance or

Sae Homes, Inc. (FLASH) website at www.fash.org.

To view other Actuarial Foundation Consumer Education Initiatives

please visit www.actuarialoundation.org.

Record Keeping

Some Final Thoughts

1. Keep the name and number o your insurance agent and/or company in a sae place.

2. Perorm a detai led inventory o household items, including valuables.

3. Take photos o particularly valuable items or pre-loss value verication.

4. Keep a copy o your insurance policy in a sae place.

5. Read your insurance policy careully, and understand what is and what isnt covered

(deductibles, general and specic limits, food coverage, etc.).

6. Put vital records in a reproo sae or saety deposit box, and/or send copies o vital

records to a trusted relative or riend in case disaster strikes and you cant get to your

home right away.

I you must evacuate the area, notiy your insurance company and veriy your insurancepolicy or coverage or temporary lodging.

Photo Courtesy Florida Division o Forestry


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Do you know the dierence between a dwelling orm and a homeowners orm?

Ever wonder about buying insurance on the voluntary market versus the shared

market? How about the dierence between open perils and named perils?

As with any endeavor, knowledge is power. The inormation provided in thisguide gives you the power to properly assess your insurance needs, so in the

event o a natural disaster, you and your amily will not be let out in the cold.

To that end, the ollowing Glossary will defne many o the key terms used in

the insurance industry, and thus aid in your understanding o the inormation

presented in this guide.

Learningthe Language


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Glossary o TermsActual Cash Value A claim settlement provision that pays damages equal to the replacement

value o damaged property minus depreciation. (See Replacement cost.)

Availability Reerence to insurance availability generally means when insurance isobtainable by consumers in the general marketplace.

Beach and Windstorm Plans State-sponsored insurance pools that sell property coverageor the peril o windstorm to people unable to buy it in the voluntary market because o their high

exposure to risk. Seven states (AL, FL , LA, MS, NC, SC, TX) oer these plans to cover residential

and commercial properties against hurricanes and other windstorms. Georgia and New York

provide this kind o coverage or windstorm and hail in certain coastal communities through

other property pools. Insurance companies that sell property insurance in the state are required

to participate in these plans. Insurers share in prots and losses.

Claim Settlement Provision The provision in your insurance policy that denes the methodthat will be used to determine the amount o money (claim payment) the insured will receive as a

result o a claim. (See Actual Cash Value, Replacement cost).

Coinsurance Provision A provision in the policy that aects the amount o total damagethat will be covered in the event o a loss. For example, i the coinsurance provision is 80%

coinsurance that means that the property must be insured or at least 80% o the ull estimatedreplacement value. I less insurance is purchased, there will be a deduction at the time o loss

payment to refect this.

Community Rating System Discounts Provides premium discounts in those communitiesthat undertake foodplain activities beyond the basic requirements o the National Flood

Insurance Program.

Coverage The extent o protection aorded by an insurance policy.

Deductible The portion o loss paid by the policyholder. A deductible may be a specied dollaramount, a percentage o the insured amount, or a specied amount o time that must elapse

beore benets are paid. The bigger the deductible, the lower the premium charged or the same

coverage.

Direct Response System Insurance sold through direct mail, telephone or Internet.Direct Writer System Sales agents who are employees o the insurance companies.

Dollar Deductible The dollar value the insured must pay beore the insurance company willpay the remainder o the claim.

Dwelling Form A policy orm that only covers building property losses.

Earthquake Insurance Covers a building and its contents in the event o an earthquake.A special policy or endorsement exists because earthquakes are not covered by standard

homeowners or most business policies.

Exclusive Agency System Independent contractors who may only represent a singleinsurance company.


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Exposure Possibility o loss.

FAIR Plans FAIR ACCESS TO INSURANCE REQUIREMENTS Plans. Insurance pools thatsell property insurance to people who cant buy it in the voluntary market because o high risk

over which they may have no control. FAIR Plans, which exist in 28 states and the District o

Columbia, insure re, vandalism, riot, and windstorm losses, and some sell homeowners

insurance which includes liability. Plans vary by state, but all require property insurers licensed

in a state to participate in the pool and share in the prots and losses.

Flood Insurance Coverage or food damage is available rom the ederal government underthe National Flood Insurance Program but is sold by licensed insurance agents. Flood coverage

is excluded under homeowners policies and many commercial property policies. However, food

damage is covered under the comprehensive portion o an auto insurance policy.

Functional Replacement Cost (Market value coverage) Repairs are made using common,modern materials and methods without deduction or depreciation; i a total loss, the payment

amount will be the market value o the home.

Homeowners Form Combines property coverage with liability coverage.

Homeowners Insurance The typical homeowners insurance policy covers the house, thegarage and other structures on the property, as well as personal possessions inside the house such

as urniture, appliances and clothing, against a wide variety o perils including windstorms, re

and thet. The extent o the perils covered depends on the type o policy. The liability portion othe policy covers the homeowner or accidental injuries caused to third parties and/or their prop-

erty, such as a guest slipping and alling down improperly maintained sta irs. Coverage or foodand earthquake damage is typically excluded and must be purchased separately.

Hurricane Deductible A percentage or dollar amount that must be paid by the policyholderin the event o a loss rom a hurricane. Higher deductibles are instituted in higher risk areas, such

as coastal regions. Specic details, such as the intensity o the storm or the deductible to be

triggered and the extent o the high risk area, vary rom insurer to insurer and state to state.

Independent Agency System Independent contractors who are usually ree to representmultiple insurance companies.

Insurance-to-Value Ratio The relationship o the amount o insurance purchased to thereplacement value o the property.

Involuntary Market Mechanisms Sometimes reerred to as shared markets, these have beendeveloped to provide coverage or entities that do not qualiy or coverage in the voluntary market.

Joint Underwriting Associations (JUA) Insurers which join together to provide coverageor a particular type o risk or size o exposure, when there are diculties in obtaining coverage in

the regular market, and which share in the prots and losses associated with the program. JUAs

may be set up to provide auto and homeowners insurance and various commercial coverages,

such as medical malpractice.

Lines o Insurance Types o insurance available or purchase; (or example, homeowners,auto, renters, boatowners).


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Loss Mitigation Measures taken to reduce damage to property.

Loss o Use A provision in homeowners and renters insurance policies that reimbursespolicyholders or any extra living expenses due to having to live elsewhere while their home is

being restored ollowing a disaster.

Named Peril Peril specically mentioned as covered in an insurance policy.

National Flood Insurance Program Federal government-sponsored program under whichfood insurance is sold to homeowners and businesses.

Open Peril Policies Policies will list what is excluded rom coverage.

Package Coverage A package policy, such as a homeowners or business insurance policy, thatprovides coverage against several dierent perils. It also reers to the combination o property and

liability coverage in one policy.

Percentage Deductible Percentage deductibles are based on the homes insured value.

Peril A specic risk or cause o loss covered by an insurance policy, such as a re, windstorm,food, or thet. A named-peril policy covers the policyholder only or the risks named in the policy

in contrast to an all-risk policy, which covers all causes o loss except those specically excluded.

Peril-Specifc Coverage Coverage that will be provided only in the event o a specic peril.For example, earthquake coverage provides coverage only in the event o an earthquake.

Policy A written contract or insurance between an insurance company and policyholderstating details o coverage.

Preerred Risk Policies The NFIP has a Preerred Risk Policy (PRP), using the DwellingForm, or those properties in low to moderate food risk areas.

Premium The price o an insurance policy, typically charged annually or semiannually.

Prior Loss A loss that has occurred to the home or to the homeowner prior to applyingor insurance.

Replacement Cost Coverage Claim settlement provision that pays damages equal to the

replacement cost o the damaged property with no deduction or depreciation (and subject to thelimits o the policy limits).

Special Payment Loss is paid beore dwelling is repaired, rebuilt or replaced.

Stated Value A selected value established by the insured, and this value is the limit o liability.

Voluntary Market Reers to the insurance market that is available to everyone, at theconsumers choice.


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A Joint Project o The Actuarial Foundation and

The Federal Alliance or Sae Homes, Inc. (FLASH)

The Actuarial Foundation, a 501(c)(3) organization, was established in 1994 to help

acilitate and broaden the proessions contribution to society. The Foundation

explores innovative ways to apply actuarial skills in the public interest and brings

together broad partnerships o individuals and organizations to address social

problems in creative ways.

The Actuarial Foundations mission is to develop, und and execute education and

research programs that serve the public by harnessing the talents o actuaries.

The nonprot Federal Alliance or Sae Homes, Inc. (FLASH) is an award-winning

coalition o government agencies, proessional associations, and private industry

committed to strengthening homes, saeguarding amilies, and protecting economic

well-being by promoting disaster preparedness. Based in Tallahassee, Fla., FLASH is

the nations astest-growing disaster preparedness education organization. To learn

more about FLASH and access ree resources and reerrals please visit www.fash.orgor call toll ree 877-221-SAFE.

AcknowledgementsFLASH and The Actuaria l Foundation wish to thank the ollowing individuals who volunteered

their personal time and eorts, through the Foundations Consumer Education Property & Casualty

Committee, in creating the background material or the development o this guide:

A. David Cummings, Chair; Petra Charbonneau; Robert F. Conger; Kathy A. Olcese; Brian Donlan;

Sara Drexler; Howard M. Eageleld; Mark. J. Homan; Charles I. Petit; R ichard Seward, IV; Paul Vendetti;Roger A. Wilk; and Stephen Wong.

The views expressed in the background papers that were used to create this booklet are their own,

not those o FLASH, The Actuaria l Foundation, any employer or other organization. This booklet

is intended to provide general inormation and should not be used as a substitute or legal or other

proessional advice. For more inormation, specic to your particular needs, please contact a local

insurance adviser in your area

Documents

Homeowner's Insurance Guide to Natural Disasters