Financial Planning Highlight
'Acts of God' Insurance Coverage
Mother Nature unleashed some fury on the northeastern US during the final days of August- an earthquake quickly followed by Hurricane-turned-tropical-storm Irene.
So what happens when these calamities cause damage to your home? The British humorist Alan Coren defined the 'Act of God' exclusion on insurance coverage as meaning you cannot be insured for the accidents that are most likely to happen to you ... but that is not exactly the case. This month we offer a primer on Homeowner Insurance... what is covered, what isn't, and how you can recover from disaster (even if you don't live in a house).
A Quick Guide:
Earthquake... Not Covered
Hurricane (wind, rain, hail)... Covered
Flooding... Not Covered
Because earthquakes and flooding are not covered by standard homeowner policies, a supplemental policy needs to be purchased. Some details on these policy types:
Flood Insurance... FEMA via the National Flood Insurance Program (888-379-9531) offers the majority of flood policies, although a few private insurers offer coverage. The cost to purchase flood insurance will depend on if and to what degree you are in a designated flood zone. Don't put off buying coverage until storms are in the forecast, there is a 30-day waiting period before federal flood coverage takes effect. What's FEMA doing in the insurance business?? Well, before Congress passed the National Flood Insurance Act in 1968 the national response to flood disasters had been to build dams, levees and other structures to hold back flood waters. This policy may have... you guessed it... encouraged building in flood zones. So instead of building levees, FEMA sells insurance. The lesser of two evils we suppose.
Since not all water damage to a home is the result of flooding, this video explains the different types of coverage.
Earthquake Insurance... available through most insurance companies. It provides protection from the shaking that can destroy buildings and personal possessions. Fire and water damage due to burst gas and water pipes caused by an earthquake are covered by standard homeowner insurance policies in most states.
One note of interest: Cars and other vehicles are covered for earthquake, flood and hurricane damage by purchasing optional comprehensive insurance.
What you can do now: *Be prepared*
Review your insurance specifics with the company representative or agent who provided your coverage and take inventory whether you own your home/condo/coop or rent. If your home were upended by a hurricane, flood, fire or theft would you be able to remember every item you own? Most people couldn't- especially during such an emotional time. We recommend taking an inventory of all your belongings and updating it when items are added or replaced. The more detailed the better.
This video demonstrates one way to document your inventory.
As mentioned in the video, a detailed home inventory will:
1) Allow you to have the appropriate amount of insurance once the value of your possessions is determined.
2) Bring speed and accuracy to the claims process if your property is destroyed.
3) Provide documentation for an unreimbursed loss on your tax return.
Our thanks to the Insurance Information Institute and their easy to use website for providing clarity on many of these topics.
Thank-you for reading,
John O'Meara, CFP®
Michael Keating, CFP®