Do You Have Proper Financial Protection If Disaster Strikes?

Steve Pomeranz: If disaster strikes tomorrow, are you financially prepared today?  Whether your area is prone to hurricanes, earthquakes, wildfires, or tornadoes, you need to make sure that you have the right type and amount of insurance for any catastrophe.  To find out how to be smart and protect yourself during these disasters, I’ve invited Dr. Robert Hartwig, President of the Insurance Information Institute, to join me.  Welcome, Dr. Hartwig.

Robert Hartwig: Hey, glad to be here, Steve.

Steve Pomeranz: Before we begin, tell us what the Insurance Institute is and who it serves.

Robert Hartwig: The Insurance Information Institute is a non-profit property casualty insurance trade association.  It is supported by the insurance industry, but we’re here to make sure that everybody, whether it’s consumers, drivers, homeowners, businesses, have the right insurance in the right amount.

Steve Pomeranz: Okay. The institute has come out with a 5-point checklist, plus they also offer local information on disaster risks and insurance coverage and deductibles and the like. Your material makes the point that we can be lulled into thinking that we don’t have to prepare for mild hurricanes, for example, but some of the biggest storms have come from these mild storms.  Tell us about that.

Robert Hartwig: That’s right.  If you actually go back to 1992, in late August we had Hurricane Andrew.  The storm began with an A, so it’s the first storm of the year, and it was the most expensive disaster in world history, and natural disaster, until we got to Hurricane Katrina, so pretty important event.  To be prepared for events like that, Steve, we really have this 5-point checklist, and it’s something that people can complete very quickly.  Pull out your policy and take a look at that policy.  If there’s anything in it you don’t understand, give your agent a call or give your company a call.  Many people say they have trouble understanding their policy, so we want to make sure you know what’s in it, and you want to make sure that you have all the coverage that you need.  A standard homeowner’s insurance policy doesn’t cover you for flood or earthquake, so depending on where you live, you may need one or both of those policies, particularly with respect to flood.  You need to get that policy into place right away because it’s 30 days before it actually takes effect, so very important.

Steve Pomeranz:  All right.  Let’s back up here a little bit.  I know that when I go and look at my insurance policy, there’s a lot of technical language, and, yes, there usually is a little bit of a dictionary there describing some of the language, but I think for the lay person it’s very hard to understand.  What are some of the key features of a standard home insurance policy that I should expect, and then what is really excluded when it comes to these special situations?

Robert Hartwig: What you want to focus on is you want to look at the limits of your coverage, do you have enough coverage?  This is all going to be on the front page of your policy, so you can really focus on these things.  You may have made some improvements to your home over the years but didn’t let your insurer or your agent know about that, so you might not have enough coverage in order to repair or rebuild if your home is severely damaged or destroyed.

Also, on the front page, you’re going to see your deductible.  Your deductible is typically going to be a fixed dollar amount, maybe $500.00 or $1,000: (a) make sure you can afford that, and, then, (b) you may have a different deductible in the event of something like a hurricane.  It’s more likely going to be something like 2% or 3%, so it’s a percentage deductible, and it’s a percent of the insured value of your home.  If you have a $500.00 deductible for your standard homeowner’s insurance policy, but your home is instead damaged or destroyed by a hurricane, it’s going to be, say, 2% of the value of the home.  You want to make sure you understand that, and you have the money to be able to handle your out-of-pocket cost.

Steve Pomeranz: We talk about storms starting off mildly.  Once I was looking at the storm that had crossed where I live, which is South Florida, and there was one year, I think it was ’04, where one storm which really didn’t do anything here was Katrina.  Here’s Katrina with all the damage that it did in New Orleans, but in South Florida we actually got the early taste of it, and it hit our state and then veered on through the Gulf.  I know one of the lessons to be learned is to make sure that if you’re following storms, even if they’re mild, to get prepared and expect the worst.  I think even Sandy up North started off as a mild storm, didn’t it?

Robert Hartwig: It did.  Sandy was a big surprise, and a few years ago in Florida, even Wilma was a pretty big surprise.  To help you with that, we have free software on our website such as our Know Your Stuff home inventory software, and you can also get that off of iTunes absolutely for free.  That will help you take an inventory of all your possessions.  The information is stored out in the cloud; it’s safe and secure.  That will help you have the information you need in order to expedite the claims process in the event you do have damage to your home.

Steve Pomeranz: What is that website again, or the app?

Robert Hartwig: On the insurance information, it’s website at iii.org.  Our software is called Know Your Stuff, and it’s a free home inventory software.  You could also get it off the iTunes store for free.  Just go on itunes.com and type in “insurance information,” you’ll find that software, Know Your Stuff software, and other software we produce as well.

Steve Pomeranz: All right.  How do you actually calculate the amount that you’ll need?  Let’s put disaster insurance aside for a moment.  You buy a house, it’s half a million dollars, but part of that purchase is the land, part of it is the actual structure itself.  Give us some thumbnail sketch of what factors to use to get the right amount of insurance.

Robert Hartwig:  Right.  Your insurer is basically going to look at the square footage of your home.  It’s going to look at the type of construction of your home—is it masonry, is it wood, these sorts of things.  Does it have an attic, does it have a basement, then what sort of appliances are in it, its age, and a variety of other factors.  Of course, it all boils down in some sense to size and then everything flows from there.  If you have a home that has special features in it such as, say, very expensive moldings or other sorts of touches that have been added over the years, very expensive, say, antique floorings, what have you, the insurer will come in, and it’ll do an evaluation of your home.  The insurer may do this anyway as a matter of routine and take a look around and estimate how much the home is worth.
Also, you have to remember that your homeowner’s insurance coverage is going to cover you for the contents of your home as well.  While usually what you receive is more than enough to purchase new content, again, if you have any special collectible items like artwork or antique collections, you want to make sure you declare those specifically to the insurer so that they can be separately insured, because there are going to be some sub-limits for these sort of collectible and very expensive type of items that wouldn’t be typical in most homes.

Steve Pomeranz: My guest is Dr. Hartwig.  He works with the Insurance Information Institute, and we’re talking about insuring your home today.  Dr. Hartwig, we know that homes are rated with regards to flood zones, so there’s a way that the insurer knows whether you’re actually more susceptible to flooding in one area versus another.  Do you think it’s also a good idea to consider getting flood insurance even if you’re not in a flood zone?

Robert Hartwig: I think that, particularly in some parts of the country such as Florida and just about anywhere on the coast, or if you live anywhere near a river or a lake, even if flooding is not even known in your area, you should consider buying flood coverage.  It’ll be very inexpensive if you’re out of a flood zone.  If you’re unsure if you’re in a flood zone or not, you can go to floodsmart.gov.  That’s the National Flood Insurance Program’s website, and you can type in your address and it’ll let you know, but absolutely.  It costs relatively little, and this includes if you’re a renter.  If you happen to live in an apartment and you’re on the ground floor or maybe only on the second floor or in a basement apartment in some parts of the country, you want to investigate this as well.  You can sometimes get it for just a few dollars a month.

Steve Pomeranz: What kind of conditions are needed to trigger these special policies for hurricane or wind deductible or some of these other policies, because we’re not even really talking about wildfires and earthquakes?  What does it really take in order for these policies to trigger?

Robert Hartwig: Right.  For something like hurricane deductible to be triggered, you need the official definition that is in your policy to be met.  That typically involves a declaration of a hurricane warning or watch within a certain distance of your home.  It could involve a certain sustained wind speed being recorded within a certain distance of your home.  Typically, it’s going to be an objective measure of wind speed or intensity of a storm that is going to trigger the deductible, for a certain number of hours, maybe 24 to 48 hours, maybe 72 hours, in the wake of the declaration.  Then any losses occurring in the home will then fall under that hurricane deductible.

Steve Pomeranz: It really has to be established as a hurricane by certain objective standards?

Robert Hartwig:        That’s correct.  Typically, there will have to be an official designation as a hurricane or a tropical storm, per your policy, and that designation is not made by the insurer; it’s made by NOAA.

Steve Pomeranz: We have a little less than a minute left.  What is not covered by these home insurance policies?

Robert Hartwig: The two largest exclusions from a homeowners insurance policy are flood and earthquake.  Again, anybody in a low-lying area, anybody in a coastal area should consider a flood policy.  Then, of course, earthquake, which we’ve not talked too much about, particularly out in the West Coast, but parts of the Midwest around the New Madrid area of western Kentucky and Tennessee and eastern Missouri, southeastern Missouri, and a few other parts of the country as well, there should be serious consideration given to earthquake policies there.  Unfortunately, in California only about 1 out of 10 homeowners actually have an earthquake policy today.

Steve Pomeranz: I suppose Oklahoma with fracking is probably going to be on that list pretty soon.

Robert Hartwig: Right.  There is some increase in activity in some parts of the country that some attribute to fracking activity.  Fortunately, those don’t seem to be very large.

Steve Pomeranz: Exactly.  My guest, Dr. Hartwig from the Insurance Information Institute.  Thank you so much for joining us.

Robert Hartwig: My pleasure, Steve.  Thank you.