Homeowners Coverage in the Age of Catastrophic Weather Patterns

The deadly winter storms that descended on Texas in early 2021, following a summer of record-setting wildfires in California, have reminded many Americans of the importance of homeowners insurance. Here is some advice on how to protect yourself—from a major disaster or an everyday one.

Risk From Natural Catastrophes Is Increasing

Many parts of the U.S. face increasing exposure to severe weather and natural disasters, according to the federal U.S. Global Change Research Program. But a 2017 National Association of Insurance Commissioners (NAIC) survey found that few homeowners were taking that into consideration in buying insurance. Only 11% considered changing weather patterns in shopping for coverage and only 21% were influenced by the likelihood of wildfires, tornadoes, or earthquakes.

If consumers have been slow to respond to climate change, insurers have not. “Since the late 1980s, catastrophes have been occurring with greater frequency and severity, and are a significant consideration in the pricing of home insurance, the NAIC noted in a 2019 report.

In 2020, insured losses from natural disasters in the U.S. totaled $95 billion, nearly double the $51 billion total for 2019.

What Homeowners Policies Generally Cover

A standard homeowners policy will pay to repair or rebuild your home if it is damaged or destroyed by fire, hurricane, hail, lightning, or other causes listed in your policy as covered perils.

That generally includes damage caused by wind, falling tree limbs, ice and other objects, damage caused by the weight of snow or ice on the structure, and damage caused by burst pipes. Damage from ice dams and water from backed-up gutters that seeps into ceilings and walls is also covered. Wind-driven snow and freezing rain damage are covered if they got into the home because it was damaged by wind

Standard policies also cover detached structures, such as a garage, tool shed, or gazebo—but are generally limited to about 10% of the coverage on the house.

In addition, the insurance company may pay for a hotel or rental if a house is rendered uninhabitable by a covered peril. 

These standard policies, referred to as ISO HO-3, account for almost 80% of owner-occupied coverage, according to the NAIC. There are other policies that are more comprehensive and some that are more bare bones, so consumers may not always know what they have.

"One potential thing consumers can ask is how an insurer's policy differs from the ISO HO-3 policy," says Daniel Schwarcz, an insurance consumer advocate and law professor at the University of Minnesota Law School.

What Homeowners Policies Often Don't Cover

Don't assume that your policy covers earthquake or flood damage. For example, earthquake coverage is not included in homeowners policies in California and typically requires a separate policy. "Other states may include earthquake or offer an endorsement to your existing policy," a spokesperson for the Insurance Information Institute notes.

Flood insurance is offered separately by the National Flood Insurance Program, and there are also are some private insurers now in the market. Even if you don't live in an area that is normally prone to flooding, flood insurance may be worth considering. For example, if melting snow from a winter storm seeps into your home from the ground up and causes water damage, your homeowners policy won't cover you, but a flood policy would.

And while policies typically cover storm damage, homeowners in some regions may face additional out-of-pocket costs when it occurs. "Policies in coastal states from Maine to Texas include separate deductibles for hurricanes and/or windstorms," explains Kelly Carter, a spokesperson for The Hartford Financial Services Group.

Burst pipe damage can also be tricky. Although it's generally covered by a typical homeowners policy, the homeowner may have to prove that they took reasonable precautions to prevent that from happening, such as keeping the heat on (if they had heat at the time).

Know Your Policy and Update It As Needed

It's important to review your coverage periodically. Some experts say at least once a year. If you haven't done that, you're not alone. An NAIC survey found that one in 10 homeowners hadn't reviewed or updated their homeowners insurance policy in more than five years.

In particular, "you should review your dwelling coverage from time to time to be sure it doesn’t drop below the cost to replace your home. If it drops below 80% of the full replacement cost of your home, your insurance company may reduce the amount that it will pay on a claim," the NAIC notes.

Also, make an inventory and take photos of your possessions to document them. That can be useful not only in the event of a disaster but also to help you determine how much coverage you need.

Most homeowners policies provide coverage for your personal possessions that's equal to 50% to 70% of the insurance on your home, according to the Insurance Information Institute. You can also add a personal property endorsement or floater to your homeowners policy to cover valuables such as jewelry or artwork. 

If catastrophe does strike, "start your claim as soon as possible," The Hartford's Carter advises. "Call your insurer or insurance professional or go to their app or website to start the claims process. Take photos and videos of the damage, if it’s safe to do so.”

Given the magnitude of many of today's calamities, you may find yourself in a long line of policyholders waiting to get paid.