Eight Insurance Mistakes to Avoid Before Disaster Strikes
Advice from experts who represent homeowners against insurers
Now that most corners of America dependably morph into hellscapes of earthquakes, floods, storms or landslides, it is essential to carry the proper disaster insurance coverage. We found a range of insurance experts who mostly work independently of insurance companies, who have together overseen millions of claims — and seen them go oh-so very wrong. We asked them about the most costly mistakes homeowners make, so you can avoid them.
Mistake #1: Buying from an agent who doesn’t know disasters.
Lovely as they are, insurance agents are often not experts in the fine points of natural disaster coverage, particularly for catastrophes that have never hit their region. “Most agents go on autopilot, and sell the same policies over and over. It’s very difficult to find a good agent,” says insurance adjuster Kevin Godfrey, owner of Long Island Public Adjusters, which settles claims on behalf of homeowners. Godfrey has personally settled over 11,000 claims both for customers and as an insurance company staff adjuster. He suggests finding agents who teach continuing ed courses or regularly post on their websites about new policy offerings on the types of policies that are relevant to you.
Mistake #2: Not getting flood insurance.
A third of all federal flood disaster assistance goes to properties not in high-risk flood zones. “It’s not like the flood is going to stop right at that 100-year-flood-zone line,” says Mark Reedy, managing director at mortgage servicing company ServiceLink National Flood. Typically, only homes in official high-risk flood areas are required by their mortgage lenders to carry flood insurance. “If a homeowner is in a coastal state or flood plain, we always suggest that they at least look into the possibility.” Check out the National Flood Insurance Program.
Mistake #3: Misunderstanding the deductible.
A deductible of 2% or 5% or 10% sounds low, right? “It’s not 2% of the loss, but 2% of the value of the structure of the home,” says Joseph Braunstein, who saw this mistake so often that he created supplemental insurance to fill precisely this gap, as president of Florida-based Vertus Insurance Partners. Translation: When your $600,000 home sustains $7,500 of wind damage, you’re paying entirely out of pocket. “Oftentimes people don’t pay enough attention, and then they don’t have $10,000 or $15,000 sitting around for a new roof.”
Mistake #4: Carrying disaster policies that don’t cover your biggest losses.
If you have a home office, do you have business interruption coverage? Does it kick in if, say, power is out for days? Is your replacement cost coverage enough to actually rebuild your special wood shop or pool? If your home is older, are you covered to upgrade it to code, as minor repairs often require? (This is called an “ordinance or law” clause.) “The cost to rebuild might actually be higher than what you bought it for,” says Jeff Zander, CEO of 90-year-old agency Zander Insurance. You can always hire an independent insurance adjuster for an hour to review your coverages. These gaffes often happen as a result of:
Mistake #5: Holding policies with a poorly-rated insurer.
The more understaffed, backlogged and ill-funded your insurer is, the more hellish your post-disaster experience will be. Check online for your insurers’ ratings at A.M. Best or Demotech (for financial stability ratings) and J.D. Powers (for customer service ratings). If your insurer is at the bottom of the list, consider switching.
Mistake #6: Not having your policy or proof of contents.
Of course you have a copy of your policy (the long version) easily accessible in the cloud, along with a video or photos of each room of your home, showcasing all your ownings, right? “You get replacement cost coverage for your contents, so you need to know things like, ‘How many suits do I have, high quality or low? How many books do I own?’” says Jim McDermott, head of litigation at Ball Janik in Portland, Oregon. How many books do you own? Go get snapping.
Mistake #7: Buying insurance online without talking to a human.
Don’t just click and purchase. You need someone to walk you through your policy, so that you understand precisely the coverage and exclusions within it. “Especially in catastrophe-prone areas, a lot of companies just don’t include disaster-related endorsements,” says Vince Vettese, COO of Property Damage Appraisers, which completes over 400,000 damage estimates a year for both property owners and insurance companies.
“You need to be educated on what you need and don’t need. The person you’re talking to on the phone will walk you through the policy.” A company rep is fine, though “agents have a tendency to bring you through those at a higher degree” of knowledge. Ask about earthquake, flood, sinkhole, wind and hail coverage, what living expenses are covered, whether you’re buying enough personal property coverage to actually replace your possessions, and whether the policy covers full rebuilding cost.
Mistake #8: Not realizing that your policies are lightweight.
Buying the cheapest policy is not the way to go. Most of the coverages in your policies are state specific, “with the carrier adding or subtracting coverage and endorsements based on their business models,” says Godfrey. “Geico is more of a bare-bones policy, while Chubb will offer substantially more protection for a higher premium.”
Chubb is geared toward wealthier clients who might want, say, their Viking appliances replaced with the latest models, and need coverage for their personal art collection. An agent can help you figure out how luxe your coverage needs to be. Godfrey says that policies through agents can sometimes include more coverages than you’d find on the web.
And should disaster strike your home, here are seven insurance pitfalls to avoid.