With Kim Lankford, Contributing Editor for Kiplinger’s Personal Finance
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To find out how homeowners can protect themselves and save lots of money this hurricane season, Steve speaks with Kim Langford. Kim is Contributing Editor at Kiplinger’s Personal Finance and the author of The Insurance Maze: How You Can Save Money on Insurance – and Still Get the Coverage You Need.
How To Prepare For Hurricane Season
Hurricane season begins June 1 and runs into November, so it’s not too late to prepare for it.
First off, determine what type of wind mitigation will protect your home against hurricane-force winds. Wind mitigation includes features such as a three-layer roof with a weatherproof membrane and weather-resistant tiles or shingles, battened down with special ring shank nails. Taking any or all of these make it harder for winds to rip off your roof.
Wind mitigation can help you save big on insurance. In a hurricane-prone area, insurance on a house without wind mitigation could run four times more than for a house with wind mitigation.
Get A CLUE Report
Kim recommends getting a Comprehensive Loss Underwriting Exchange report (aka a CLUE report) on a home that you’re looking to buy. A CLUE report gives you the history of past insurance claims filed on a house, which clues you into a home’s level of risk in natural disasters.
CLUE reports can only be obtained by homeowners, so ask the seller’s agent for one. A CLUE report could give you significant home price negotiating leverage and alert you of future repair expenses.
Shop Around For Home Insurance
Kim advises shopping around for home insurance since premiums can vary significantly on similar coverage. Insurance companies in Florida, for instance, offer standard discounts for wind mitigation features. In other states, discounts aren’t standard and comparison shopping can sizably lower premiums.
Get Flood Coverage If Needed
After Hurricane Harvey, many people realized the importance of flood coverage because it wasn’t covered by homeowner’s insurance. Flood coverage is available from FEMA’s National Flood Insurance Program or from private flood insurance marketplaces in states such as Florida. See if your home qualifies for federal flood coverage and compare prices against private coverage options for the most savings.
Check Out An Insurer’s Reputation And Complaints Record
Always inspect an insurer’s complaints’ record before you purchase insurance. Stay away from insurers that have long claims resolution periods. Look for reviews to see if people have good things or bad to say about their experiences with the insurer and the fairness of the claims resolution and settlement process.
Increase your due diligence if a company offers a really low premium. In such cases, make doubly sure that the company has a good track record and positive customer reviews. Low premiums are worthless if your claims aren’t fairly settled.
In General, You Get What You Pay For
Insurance complaints are listed on the Consumer Information Source page of the National Association of Insurance Commissioners website, which also shows how insurers stack-up against their peers.
Keep A Large Rainy Day Fund For Deductibles
Natural disaster policies typically carry heavy deductibles of between 2% to 5% of your total coverage amount. On a $300,000 policy, deductibles could range from $6,000 to $15,000. Additionally, you might have to pay for items not covered by insurance, such as the cost of removing fallen trees. So set aside enough to cover deductibles and out-of-pocket costs.
Don’t skimp on insurance by going for the lowest premiums. Your home is your castle, so make sure you’re adequately covered by a well-reviewed insurance provider.
Disclosure: The opinions expressed are those of the interviewee and not necessarily United Capital. Interviewee is not a representative of United Capital. Investing involves risk and investors should carefully consider their own investment objectives and never rely on any single chart, graph or marketing piece to make decisions. Content provided is intended for informational purposes only, is not a recommendation to buy or sell any securities, and should not be considered tax, legal, investment advice. Please contact your tax, legal, financial professional with questions about your specific needs and circumstances. The information contained herein was obtained from sources believed to be reliable, however their accuracy and completeness cannot be guaranteed. All data are driven from publicly available information and has not been independently verified by United Capital.
Steve Pomeranz: Hurricane season is here, so let’s see if we can quickly brush up and protect ourselves and save loads of money to boot. So I’ve asked Kim Lankford, a contributing editor for Kiplinger’s Personal Finance, who’s an expert on this stuff, to join me today. Hey, welcome to the show, Kim!
Kim Lankford: Thanks for having me!
Steve Pomeranz: Hurricane season always begins June 1st, runs to November as well, and multiple major hurricanes are always likely to occur. Let’s talk about some ways to prepare. What do we need to start thinking about?
Kim Lankford: Well, first of all, find out about what type of wind mitigation you can do to your own home or find out, if you’re buying a new home, what has been done already. Because first of all, not only will that protect your home enormously, but it could really make a huge difference in the price of your homeowner’s insurance. In fact, a house without wind mitigation features in a hurricane-prone area may end up costing about 400% of the cost of one that does have wind mitigation, so it’s about four times difference.
Steve Pomeranz: What makes up wind mitigation items? What are we talking?
Kim Lankford: Well, there’s all kinds of things that they call it, fortifying your home. And it really is anything that’s really keeping the wind out, keeping your house, they call it, keeping it in an envelope, very tightly protected. So a lot of these things are when you’re changing your roof, steps that you can take. For example, they say instead of using regular nails, use certain kind of nails called ring shank nails that are much harder for the wind to get under and pull apart. And to have three layers on your roof, very tight layers with a very weatherproof membrane and weather-resistant tiles or shingles on the very top. All of those things, step by step, can really help keep that wind out and protect your house.
Steve Pomeranz: Okay, good. I also understand there’s something called a home’s CLUE report, C-L-U-E, Comprehensive Loss Underwriting Exchange. Leave it to insurance companies and lawyers to figure out a name like that. But if we’re going to call it the CLUE report, what is that?
Kim Lankford: Well, and this is a great thing, no matter where you’re buying a house, to check out what the claims history is on your home. And so you can find out whether, when you’re buying a new home, find out whether the person had any hurricane damage in the past or any other types of damage, whether it was water damage. To find out ahead of time whether this is a type of home that has a propensity to have water damage that’s caused a lot of insurance claims is very important to know. So check out the CLUE report, and generally, if you’re buying a house, you’re going to have to request this from the buyer and their real estate agent.
Steve Pomeranz: A buyer can’t-
Kim Lankford: But it’s really important.
Steve Pomeranz: A buyer can’t go out and get it themselves, but a homeowner can. So you want to request it.
Kim Lankford: Right, and your real estate agent can usually request it from the selling agent.
Steve Pomeranz: Right, gotcha. So how viable is shopping around for home insurance? Are the price differentials big enough?
Kim Lankford: They can be enormous. And the thing is, it depends on what state you’re in. I mean, in Florida, a lot of the wind mitigation steps that you take have required discounts. So insurers are supposed to give you pretty much standard discounts for certain wind mitigation features. In other states, the results can vary enormously. So some insurers may give you a very large discount for storm shutters, for example, while another insurer may not give you quite as much. So it’s really important to shop around both for homeowners insurance as well as flood coverage. And flood coverage, after Hurricane Harvey, people realized how important that is to have flood coverage.
Flooding is not covered by homeowners insurance, but you can get flood coverage from the National Flood Insurance Program. But in many states, such as Florida, there’s a growing private flood insurance marketplace too. So it’s a really good idea to see not only whether you can get the federal flood coverage, but to compare the prices and coverage to private options too. And you can go on your state insurance department website, and they generally will show you a list of companies providing homeowners insurance as well as private flood coverage in your area.
Steve Pomeranz: Okay, cool, they have a rate comparison tool that I understand is very good. Starting around June 1st, in my own mailbox, I received a lot of advertisements promoting flood insurance. So I guess that area is expanding as well. And of course, they’re picking the perfect time to remind me, which I think is in their best interest and maybe as well as mine. We’re going down a list here. So how important should we, or let me restate this, should we be looking at an insurer’s complaint record before we purchase any insurance from one of them?
Kim Lankford: That is a very, very good step to take, and especially if you’re in an area that tends to have a lot of natural disasters. If you’re in a hurricane-prone area where people have had a lot of claims, it’s a really good idea to see how that insurance company stacks up in terms of fulfilling those claims—whether people are going to have to wait a long time, whether they have a lot of complaints, whether they’ve had good communication with the insurer.
And also, whether they feel they’ve gotten a fair settlement from the insurer in terms of replacing their items that were damaged. A lot of times, you might see a company that has a really low premium. But before you jump on that, make sure that they’re not a company that has a reputation of hassling people at claim time because that could defeat the whole purpose of paying those insurance premiums.
Steve Pomeranz: Yeah, because if they’re lowballing their insurance premium, they’re probably not building up adequate reserves and then they’ll have to manage the payout on the other end of the scale. And you know what, if you get hit by a hurricane and you’ve got damage, you really don’t want to be put in that position. So I’m not saying that low prices always mean bad service, but you kind of get what you pay for.
Use your better common sense with regards to that.
Kim Lankford: And a good thing is, it’s really easy to look up your insurer’s complaint record. You can go to the National Association of Insurance Commissioners website. It’s NAIC.org/CIS, which is the Consumer Information Source. And you can look up property and casualty is where you’ll find auto and homeowners insurance complaints.
And they have it on a scale to show whether it’s higher than average, lower than average, or right on target, and some more details as well, so a great resource.
Steve Pomeranz: My guest is Kim Lankford. She is a contributing editor for Kiplinger’s Personal Finance. Kim, let’s talk about the deductible, that seven-letter word.
I don’t know how many actually letters are in the word deductible. [LAUGH] My producer is counting right now, six?
Kim Lankford: [LAUGH]
Steve Pomeranz: Eight, [LAUGH] okay, ten, okay, never mind, just wasted ten seconds of precious time. The windstorm coverage and deductible, 2%, 5%, what’s that all about? What can we do about that, if anything?
Kim Lankford: Well, one good thing is that a lot of areas where it was difficult to get homeowners insurance in the past now do provide homeowners insurance in some of these more hurricane-prone areas. However, for the windstorms, for any damages from hurricanes or windstorms, they now have you pay a much higher deductible. So instead of your standard $500, $1,000 deductible that you might have on your home insurance, any damage for windstorms may have a 2% or a 5% deductible.
And that’s a 2 or 5% of your total coverage amount. So if you have a $300,000 policy and a 2% hurricane deductible, you’d have to pay $6,000 out of your pocket before your insurance would cover any hurricane damage. And a lot of times, this is just a way that you can get that coverage from a regular insurer. However, just be prepared. Keep some extra money in your emergency fund to be able to cover those expenses because you will have to pay them, if you have hurricane damage, before that insurance is going to kick in.
Steve Pomeranz: Yeah, you mentioned 2% of 300,000. 5% of 300,000 is 15,000, so that could cost you quite a bit. However, remember that insurance is really for catastrophic types of things, whether it’s life insurance or health insurance. It makes sense to have a fairly big deductible because you’re really protecting your assets and your income from catastrophic occurrences. But 5% is pretty significant for a lot of people. They’re not going to have 15,000 or 25,000 necessarily sitting around in their bank account to cover those losses.
Kim Lankford: And it’s just important to do that math ahead of time so you don’t have a big surprise. And also know about some other things that might not be covered by your insurance that might lead to out-of-pocket expenses. If you have trees down, for example, if it does damage to your house, that’ll usually be covered. But the cost to remove the trees may not be covered or may have a very low cap, like $500 or so. So just find out about some of those things that you may have to pay out of your own pocket. And just make sure, especially during hurricane season, that your emergency fund has some of that money in there in case you do have to pay those costs. But like you said, it’s really important to have those big things, the tens of thousands of dollars, even hundreds of thousands of dollars of coverage on the large end to help rebuild your house. That’s the really important part.
Steve Pomeranz: We’ve talked about a lot of stuff on this segment. So to hear this again, listen to the full show or get a summary of all the vital lessons learned here today, go to StevePomeranz.com. And while you’re there, sign up for our weekly update, where we will send you these important lessons from the show straight into your inbox.
Kim Lankford, contributing editor for Kiplinger’s Personal Finance. Hey, Kim, thanks for joining us.
Kim Lankford: Thanks for having me.