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Protecting Your Home From Disasters
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Insurance coverage can be limited—and homeowners often bear more of the costs.
Updated May 30, 2014 7:25 p.m. ET
Photos: Costliest Disasters
Many homeowners are flirting with disaster—and they may not even know it.
Natural catastrophes and severe weather events that cause major damage are occurring
more frequently and inflicting more costly harm. Insurers have responded by putting
stricter limits on their liability for losses, forcing homeowners to take on a greater share
of the risk.
The result is a growing financial incentive to prepare wisely. That means not only buying
appropriate insurance coverage but understanding its shortcomings. It also means
fortifying your home to prevent destruction and, perhaps, reduce premiums.
"You have to understand that you will be paying out of your own pocket," says Paul
Jeffrey, a 60-year-old retired pharmaceutical executive who spent more than $100,000 of
his savings after superstorm Sandy damaged his home in Ortley Beach, N.J., in 2012—
even though he and his wife had purchased both traditional homeowner's insurance and
flood insurance. "We've used up a dangerous portion of our retirement fund to stay here
and cover repair costs that flood insurance and homeowner's [insurance] didn't."
Most Americans live in areas that are
vulnerable to at least some kind of
disaster. More houses, with higher values,
have been built in parts of the country
prone to hurricanes, floods, earthquakes
and wildfires in recent decades. Disasters
Residents of Joplin, Mo, survey the damage after a tornado hit the city in May 2011. Associated Press
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also are damaging homes far from wherethe public perceives the risk, as whentropical storm Irene triggered flooding inVermont in 2011.
The stakes also are rising. There were 63catastrophes—such as hurricanes,tornadoes, wildfires or earthquakes—thateach resulted in more than $1 billion inlosses in the 10 years through 2012, themost recent year for which dollar figuresare available, according to the National
Oceanic and Atmospheric Administration and the U.S. Geological Survey. Those eventscaused a total of $485.2 billion in damages.
By contrast, there were only 38 such catastrophes that triggered more than $1 billion inlosses between 1993 and 2002, adjusted for inflation, and those losses totaled $183.6billion. From 1983 to 1992, there were 26 such catastrophes, with losses of $131.3billion. (Loss figures are in 2013 dollars.)
With the Atlantic hurricane season starting on Sunday, here are tips for protecting yourhome—and your wallet—from five types of disaster.
Hurricanes
Irene, Katrina and Andrew all sounded powerful alarms about the danger of living alongthe Gulf and Atlantic coasts.
But people still put valuable assets in harm's way. The insured value of homes andbusinesses in coastal areas from Texas to Maine—the U.S. states most vulnerable tohurricanes—was $10.6 trillion in 2012, up 48% from 2004, according to AIR Worldwide,which measures risk for insurers.
The threat is so great that insurance companies have stopped offering certain types ofcoverage with homeowner's insurance policies in some areas. State Farm, for example,no longer sells policies that cover wind and hail damage in parts of southern Louisiana.
That means homeowners who want a better deal on insurance may have limited options.But a few maneuvers could prove helpful.
First, look at your deductible, which is the amount of damages you pay. Many coastalpolicies have special hurricane deductibles, which typically require a homeowner tocover a chunk of the losses, often 1% to 5% of the policy amount, according to theInsurance Information Institute, a trade group. Traditional deductibles require ahomeowner to pay a flat dollar amount.
Hurricane Katrina tops the list of highest insuredlosses from a U.S. natural disaster. Associated Press
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That shifts risk to the homeowner. Mr. Jeffrey's 5% hurricane deductible, for example,requires him to put up as much as $49,600, based on the insured value of his house,which is $992,000.
A homeowner could look for a policy that charges a higher premium in exchange for atraditional dollar deductible. That may be hard to find in high-risk zones, saysWashington-based advocacy group Consumer Federation of America.
Some states decide what triggers a hurricane deductible, such as a hurricane warningby the National Weather Service, says the insurance institute.
Rebuilding costs can rise sharply after a hurricane, as many people seek contractorsand building materials, the consumer federation says. One option is an extended orguaranteed replacement policy. Extended replacement-cost coverage generally pays upto 20% to 25% above the policy limit, while a guaranteed replacement-cost policy payswhatever the cost, says Loretta Worters, an insurance institute spokeswoman.
Building codes may have gotten stricter since your home was built. Generally,homeowners' insurance policies—even a guaranteed replacement-cost policy—won'tpay for the extra expense of rebuilding to code, Ms. Worters says. Many insurers offeran "Ordinance or Law" endorsement that pays a specified amount toward these costs.
Also consider adding an inflation-protection clause, which adjusts the dwelling limitautomatically, Ms. Worters says.
Homeowners also can take a number of low-cost steps to decrease the risk of damage.
For example, use mulch for landscaping, not stones, which can become missiles in highwinds, says the Insurance Institute for Business & Home Safety, a Tampa, Fla.-basedgroup funded by the industry. Check trees for weak branches, and secure doors andwindows to close gaps where water could get in.
FloodsStandard homeowner's insurance covers damage from rain that gets into the house. Butyou need a separate policy for losses from surging ocean waves, an overflowing river ora raging brook.
The business is dominated by the federal government's National Flood InsuranceProgram. Run by the Federal Emergency Management Agency, the program providescoverage of up to $250,000 to repair a home and $100,000 for personal possessions.
Homeowners purchase policies from insurers that sell and service them on behalf of thefederal program. A list of participating insurers is available on floodsmart.gov.
Federal law requires that people purchase basic flood insurance if they buy a home in adesignated high-risk flood area with a federally backed mortgage. (See floodsmart.govfor more information.)
Flood policies are available for homes in other areas, too. Deductibles for federal floodpolicies typically range from $1,000 to $5,000 in high-risk areas, and lower elsewhere.There is a 30-day waiting period for a policy to go into effect.
The policies don't cover temporary relocation costs, such as hotels or apartments. Theyalso don't pay for damage in a basement, other than to heating, air-conditioning andwater systems. The policies cover up to the replacement cost of a primary residence,within policy limits, but cover only the cash value of possessions, according to a FEMAspokesman.
Some private-sector insurers provide their own "excess flood" insurance that kicks inabove the federal limits, a popular choice for high-end homeowners. The insurers includeAmerican International Group, Chubb and Fireman's Fund Insurance.
The consumer federation recommends that homeowners consider buying excess floodcoverage on top of their federal flood policy. The reasoning: If a structure is 50%damaged, federal rules require elevation of the first floor. Federal flood policies covercode upgrades, but the maximum $250,000 limit may be inadequate, the group says.
As with hurricanes, there are practical steps you can take to help prevent flood damage.
The Insurance Institute for Business & Home Safety suggests clearing drains and
gutters and making sure water drains away from your home's foundation;; moving
valuables from lower floors to higher ground;; and using cinder blocks to elevate
appliances that could be damaged by a few inches of water.
WildfiresMost standard homeowner's policies cover damage from wildfires.
Premiums are likely to be higher on homes far from fire departments and fire hydrants or
secluded on hills or mountains. In some high-risk areas, insurers may decline to provide
wildfire coverage.
Homeowners can reduce the likelihood their house will catch fire by removing trees and
bushes within five feet of the structure, the safety institute says.
In addition, homeowners may want to consider covering attic and crawl-space vents to
reduce the risk that embers will get blown inside. Vent covers typically cost $30 to $50.
Many insurers will charge lower premiums if homeowners make certain changes.
Nationwide Insurance, for example, says it charges less if homeowners install sprinkler
systems, in most states. Some insurers will lower premiums if a home's roof is
composed of fire-resistant materials, such as concrete, clay tiles or fire-retardant wood.
But if you are only doing it to save money on premiums, do the math first. An average
sprinkler installation costs $2,671, according to HomeAdvisor.com, a home-improvement
website. Sprinklers can result in a maximum discount of 10% off insurance premiums,
according to the insurance institute. In that case, a homeowner paying $1,022 in annual
premiums—the average in 2013, according to the insurance institute—will need more
than 26 years to recoup the cost.
TornadoesWhile damage caused by tornadoes is covered by standard homeowner's insurance,
experts say premiums are rising in markets where tornadoes have struck repeatedly
over the past few years.
In some cases, an insurance policy will come with a special deductible that is generally a
percentage of the insured value or a flat dollar amount, says Amy Bach, executive
director at United Policyholders, a San Francisco-based nonprofit that assists
consumers with home-insurance problems.
While there is little many homeowners can do to guard against a strong tornado, damage
from weaker tornadoes can be reduced by cutting down low-hanging tree branches or
removing nearby trees entirely.
The aftermath of a devastating tornado in Joplin. Mo., in 2011. Getty Images
WSJ In-Depth
As with a home in a hurricane zone, consider removing nearby rocks and gravel, and
bolting outdoor generators or propane tanks into the ground.
Homeowners also can install ring shank nails, which can make the roof twice as strong
and help keep it from being torn off in a tornado, says Julie Rochman, who heads the
safety institute.
EarthquakesAs with flood losses, damage from earthquakes is excluded under standard
homeowner's insurance, though earthquake coverage can typically be added with a rider
or purchased as a separate policy.
Many people don't buy the coverage. In California, where most of the costliest
earthquakes in the U.S. have occurred, just 11% of homes with homeowner insurance
also have earthquake insurance, according to the California Earthquake Authority, the
state-managed residential earthquake insurer. There also is a risk of earthquake damage
in Illinois, Missouri, Tennessee and elsewhere in the U.S.
Homeowners can try to limit potential damage. Anchoring televisions, mirrors, water
heaters and other large objects to the walls or floor lessens the chance they will fall or
get thrown around during an earthquake.
Another option: Installing a valve that will automatically shut off gas, averting a potential
explosion. The valves can cost $300 to $600 and may lower premiums, says Ms. Bach
of United Policyholders.
If your home is at risk, consider whether you will have the financial wherewithal to pay for
repairs on your own.
Earthquake coverage is available through major insurers, such as State Farm, Chubb
and Nationwide, in many states. In California, the policies are sold by major insurers and
the payouts are made by the state's earthquake authority.
The average annual premium is $789 in California, according to the authority. Around the
country, deductibles can run from 2% to 20% of the dollar amount to repair a home, Ms.
Worters says. In California, policyholders must choose a 10% or 15% deductible.
Cindy Hazzard, 59, of Anaheim, Calif., and her husband Jim signed up for earthquake
insurance in March after a 4.4-magnitude earthquake struck nearby. Ms. Hazzard, a
real-estate broker, says their daughter's mother-in-law's home was damaged.
"That made it real," she says. "It hit home."
Write to AnnaMaria Andriotis at [email protected] and Leslie Scism at
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Andy Kushner
"...Natural catastrophes and severe weather events that cause major damage areoccurring more frequently...."Uh, no. The media absolutely salivates during any severe weather situation andharps on it incessantly. The 1880s were the worst decade on record for hurricanestrikes in the US.During a hurricane all reporters want to be filmed in a windy downpour in hopes itwill propel them from a local channel to the national network like it did for DanRather during Hurricane Carla in 1961.
Alonzo Quijana
Also, check your condo association's coverage. Here in S Florida a lot of condoshave very high deductibles for common areas -- mine is about $10,000 per unit. In amajor hurricane that would flow back to us as assessments. During Katrina andWilma we got about $2500 in assessments. Some homeowners wind insurancewill cover this, some will not.
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