Home Insurance: Are You Covered for a Flood or Tornado?
A few days ago, I wrote about how most home insurance limits the amount they will pay to rebuild your home and what you should do to make sure you have enough coverage.
But having enough dwelling coverage isn't the end of it. You also want to ensure that the policy guarantees that your home contents will be covered no matter what the reason for the loss. This is particularly important if you have a larger home, many furnishings, jewelry, art, or a home office.
For folks who own a single family property, you need to have a type of home insurance coverage called an HO-5 policy. Only this type provides replacement cost coverage for contents damaged or lost due to all risks.
Flood Insurance
No standard home insurance policy will cover flood damage. Homeowners in flood zones can buy flood insurance under the National Flood Insurance Program through the Federal Emergency Management Agency, and any claims are often serviced by your insurance company. The maximum coverage for building property is $250,000 and $100,000 for loss of personal property. Losses are covered for Actual Cash Value versus Replacement Value. If you need more flood insurance coverage you'll have to get it through private insurers and will have to check for companies in your state that can provide policies with higher coverage limits.
Some owners of high-risk properties may have to resort to obtaining coverage through Fair Access to Insurance Requirements, or FAIR Plans, which are state mandated insurer organizations that cover high-risk properties.
Coverage for Loss of Use
One thing most homeowner's policies do cover is "loss of use." If you have damage to your home and are forced to evacuate you may find that the costs to stay in a hotel and other related living costs are generally covered up to a dollar limit that is typically about 30 percent of the overall policy dwelling coverage. So for instance, if your policy dwelling limit is $200,000, you may be entitled for up to $60,000 in reimbursement for your expenses associated with your loss of use.
Vacation Homes
People who own vacation homes and second homes have special insurance needs to consider. When buying or updating homeowners coverage on a second home, be sure to disclose to the insurance company that the home is a vacation home, the amount of time you occupy it and if you also offer it for rent when you are not using it. Coverage for vacation or second homes should include additional liability coverage, loss of use and loss of rental income benefits. That way if you have a loss, the insurance policy will pay for you to rent another vacation home. It will also reimburse you for the rental income you could have received while the home is unable to be rented out.
The take-away is this: If you haven't reviewed your home insurance policy is a few years, then pull it out and read the policy coverage summary and think about how this would apply if you experienced significant damage to your home. If you aren't sure about your coverage, then call your agent or insurance company and review the policy with them.
Ray Martin
View all articles by Ray Martin on CBS MoneyWatch»
Ray Martin has been a practicing financial advisor since 1986, providing financial guidance and advice to individuals. He has appeared regularly as a contributor on the CBS Early Show, CBS NewsPath, as a columnist on CBS Moneywatch.com and on NBC-TV's morning newscast TODAY. He has also appeared on the Oprah Winfrey Show and is the author of two books.
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