Homeowners who do not understand their flood insurance or homeowner policy would be smart to purchase good life insurance. When Armageddon strikes, the reality of your insurance situation could cause you a heart attack. If you have both homeowners insurance and a flood insurance policy on your home, you might not have the protection you think you have. There are some restrictions that can prevent you from collecting after a disaster. The first loophole the insurance company uses is the policy deductible. Most homeowners know this because they have a deductible with their health insurance and car insurance. A deductible is the portion of the expense or loss that the person with the policy must pay before the insurance pays a penny.
For a homeowners policy the deductible is typically $250 up to $1,000. If you choose a higher deductible your monthly premiums will less. A $500 deductible is very small compared to the loss of a $250,000 home, it will discourage small claims on the policy. Insurance companies know that if there were no deductible the number of claims they process would skyrocket. Choosing a higher deductible will save you a lot of money during years where you have no problems with your home. However, it does come as a shock to find out $1,000 of your damage is not covered on your claim.
Review your homeowner policy; is it considered a valued policy? Valued policies are ones that pay the full amount of coverage in case of total loss. For instance, if your home were blown away by Hurricane Rita, but not flooded, and it costs $200,000 to rebuild, if your policy is valued with a $150,000 limit, you would receive $150,000.
What is the difference between a guaranteed replacement cost policy and an actual cash value policy? A guaranteed replacement cost insurance policy pays the cost to rebuild after total destruction regardless of the limit on your policy. If your home is totally destroyed and costs $300,000 to rebuild, a guaranteed replacement insurance policy will pay $300,000 even if you are insured for only $150,000. It always smart to photo document special features of your home, in case you have problems with claims adjuster working on your claim. Even if your home is not a total loss, the replacement costs versus cash value can leave you high and dry. Replacement cost policies pay for replacement or repairs based on the actual cost of materials and labor. Suppose a violent wind tears a section of asbestos roofing shingles off your home; with a replacement cost insurance policy the insurance company will process your claim for the expense of the shingles and labor. The actual expense of repairing your roof could wind up costing you more that you get from the insurance company.
More on Flood Insurance.
Flood insurance is not considered a valued policy; your flood insurance pays only up to the policy limit. If your home is insured for $200,000 and is lost to flood damage, $200,000 is the most you can claim even if it cost $300,000 to repair your home. You will also have to choose a deductible for flood coverage. Flood insurance can be purchased for replacement cost or actual cash value like homeowners insurance; however, your personal property and some things like carpet are always paid on an actual cash value basis.
If you haven’t reviewed your policy to ensure you have enough coverage for your home and household items, Click here to get started.