Homeowners picking up the pieces from Hurricane Michael will quickly learn an important lesson: not all hurricane-related damage is covered by home insurance.
Before making landfall Wednesday, Michael rapidly intensified to an extremely strong storm packing 155 mile-per-hour winds, just shy of Category 5 status. The storm ranked as the third-most intense hurricane to hit the continental United States, according to Accuweather, and was the strongest storm to ever hit the Florida Panhandle.
For homeowners, what precisely caused the damage to their home will prove important for insurance purposes, because coverage will depend on how the damage was caused. During a hurricane, if high winds cause roof damage that leads to significant water accumulation within the house, insurance will likely cover it. But if a nearby river crests because of the heavy rainfall and then causes flooding, the damage to homes will only be covered if the owners have flood insurance.
That’s why most homeowners in the path of September’s Hurricane Florence’s torrential rains would have been better off if their home had been hit by a wildfire or volcanic eruption — at least from an insurance perspective.
Damage caused by flooding isn’t covered by standard home insurance policies. Only homeowners who bought separate flood insurance for their homes were covered if water from Florence damaged their house. And there weren’t many people in that boat.
Most homeowners affected by Florence will be stuck footing the bill: CoreLogic also estimated that 85% of the losses to residential properties were uninsured. Before the storm hit, actuarial firm Milliman estimated that fewer than 10% of households in North Carolina had flood insurance.
A similar refrain could now play out because of Hurricane Michael. When Hurricane Irma struck Florida last year, only 14% of the 3.3 million households in the nine counties affected by the disaster had flood insurance coverage, according to data from Pew Charitable Trusts. That’s in spite of the fact that Florida households comprise 35% of policies under the National Flood Insurance Program.
Even when insurance does cover the damage from a certain catastrophe, deductibles are still at play. Hurricane deductibles vary from policy to policy, but are often assessed as a percentage of the home’s overall value.
Coverage for other disasters operates similarly. In volcanic eruptions, damage caused by lava flows or resulting fires is covered by a standard homeowner’s policy, but if the eruption causes seismic activity, homeowners will not be reimbursed unless they have purchased a separate earthquake policy.
The average annual premium for a policy through the National Flood Insurance Program was $878 as of April 2017. But flood insurance premiums can easily cost thousands of dollars in regions that are determined to be at the highest risk of flooding.
But flooding is just one type of natural disaster that isn’t covered by standard home insurance policies. And in the case of disasters like hurricanes, where damage can be caused by a variety of factors including wind, rain and storm surge, it can quickly get confusing—and frustrating— for homeowners who are trying to figure out whether their insurance policy covers certain damage.
What is covered under a standard homeowner’s insurance policy
Some natural disasters are always covered by homeowner’s insurance, including wildfires, tornadoes and hail storms. But other natural disasters are never or rarely covered under a standard homeowner’s insurance policy. They generally fall into two categories: floods and “earth movements.”
The first category comprises disasters caused by rising water, which includes everything from floods caused by extensive rainfall and hurricane-induced storm surges to dam failures and tsunamis. “Earth movements” include disasters such as earthquakes, landslides and sinkholes.
Unfortunately, many Americans are unaware that these disasters are not covered by a standard homeowner’s policy, according to the Insurance Information Institute.
The private market and government provide flood insurance
In the case of insurance for flooding, the federal government has stepped in. The National Flood Insurance Program was created in 1968 after insurance companies struggled to pay off claims following a slew of floods in the 1950s. Homeowners have the option to buy flood insurance through this program or to get a private insurance policy. In certain cases, homeowners may be required to purchase flood insurance by their mortgage lender if their home is located within a flood zone.
Private flood insurance now accounts for roughly 15% of all flood premiums nationwide, according to a March report from Insurance Journal. And for many homeowners, a policy from a private insurer rather than through the federal insurance program could be cheaper. A July 2017 briefing from Milliman found that private flood policies would have lower premiums for 77% of all single-family homes in Florida, 69% in Louisiana and 92% in Texas.