Wind vs. Water Equals Hurricanes vs. Floods
By my estimation, at least 50% of the losses faced by those who lost property in Hurricane Irene’s aftermath are not insured. Why? The losses they faced are directly attributable to flooding, not the hurricane-force winds. And many people in the Northeast don’t own a flood insurance policy.
Former Hurricane and Tropical Storm Lee will bring similar financial pain to Louisiana, Mississippi, Alabama and other Southern states. For insurance purposes, the damage suffered by most will be considered caused by water, not wind, and thus not insurable.
The wind vs. water rages on.
What’s The Difference?
Most people will ask, “What’s the difference?” or “I have a homeowners policy and I suffered a loss to my home, so this should also be covered.” Unfortunately, damage by flood is not covered by your typical homeowners insurance policy.
Many communities in New York, Pennsylvania, Vermont, and New Jersey are monitoring the rivers, streams and levees with trepidation. Many home and property owners will face the double whammy of losing everything, and not having the means to rebuild.
Insurance Policies Make Good Reading. Seriously.
Most people don’t really read their homeowner or auto insurance policies until they suffer a loss, whether the loss is insured or not. Take a moment, find your homeowners policy, and give it a good read. While most people feel they know what’s covered under their policy, they really don’t.
You are literally better off having the 80-foot tree in your front yard fall into and cause part of the front wall of your home to collapse. Then, as the rainwater pours into and further destroys your home, you can rest easy in the knowledge it is a covered loss. Why? Because the covered cause of loss (the falling tree), preceded the additional loss from an outside source of water. If, however, a flood surged through your neighborhood and ripped the front wall away from your home first, you wouldn’t be covered, unless you owned a flood insurance policy with adequate coverage.
Your homeowners policy specifically excludes coverage when damage to your home results from a source of water from outside your home. This is why every homeowner should own a flood insurance policy, with limits equal to at least 80% of the homes Replacement Cost Value. (I’ll be discussing just what Replacement Cost Value is in a future post.) Renters, and co-op and condominium owners whose units are below the third floor in an apartment building should also own a flood policy, as well as those who rent or own townhouses.
So, before the next hurricane comes a-calling, this is a great time to purchase flood insurance equal to at least 80% of your homes Replacement Cost Value. Also, arrange an annual homeowners insurance policy annual review with your insurance representative to guarantee you own, at minimum, 100% of the Replacement Cost Value of your home in your Homeowners Insurance policy.