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Informed Investor: Insurance lessons for property owners and renters from Hurricane Sandy

Hurricane Sandy affected millions of residents in the Northeast and resulted in loss of human life and billions of dollars in damages. This week’s column discusses what affected homeowners need to know about filing insurance claims for hurricane-related damages, and what all homeowners should do in anticipation of future storms affecting the Gulf and East Coasts.

For those property owners living in New Jersey, New York and Connecticut and anywhere along the East Coast recently affected by Hurricane Sandy, there are important insurance lessons to be learned. Estimates of damaged caused by Hurricane Sandy range from $30 billion to $50 billion. This column discusses what property owners affected by Hurricane Sandy should do to expedite their insurance claims and to address any problems they may encounter when submitting their claims. It also examines what homeowners should understand about their homeowner insurance policies when it comes to what is and is not covered with respect to damages resulting from hurricanes.

There undoubtedly will be delays in the processing of storm-related insurance claims. This is not surprising given the time involved in making a complete assessment of damages and fully accounting for any losses. An example of these delays occurred with Hurricane Wilma that struck Florida in 2005. During 2009, more than 2,000 homeowners were still waiting for their insurance claim money—four years after the storm.

A possible reason that claims take time to process is that it is not always apparent if any storm damages were wind-related or flood-related. Most homeowner insurance policies will cover damages resulting from strong winds, including water damage that was a result of wind-driven rains coming through a broken window or through a broken roof caused by a tree falling on a house.

Claims for flood damage “from the ground”—for example, excess rainfall and snowmelt that seeps through a house’s foundation—typically require a separate flood insurance policy. Unfortunately, many primary residence homeowners and vacation homeowners along the New Jersey coast did not own separate flood insurance policies and will likely have to pay for flood-related damages resulting from the storm surge.

Those homeowners who feel they have legitimate insurance claims are encouraged to submit their claims as soon as possible. Insurance experts say that many homeowners hesitate to file claims because they are not sure if they have sufficient damages to file a claim, or at least a claim that is more than the policy’s deductible. But that determination is for the insurance company to make. The sooner a claim is filed, the sooner the insurance company can adjudicate the claim.

The homeowner should provide as much information as possible about the destroyed or damaged property. A “before and after” picture, purchasing records, and contractor estimates for repairs are especially valuable.

Affected homeowners are cautioned to be aware of contractor scams that frequently occur after a major disaster. Some contractors will furnish their own estimates of repair. Under no circumstances should the homeowner give the contractor a down payment for promised repairs. The homeowner should work with an insurance agent or broker, particularly with respect to recommendations for reputable contractors who work with the insurance companies during times of disasters such as hurricanes, forest fires or tornadoes.

Scientists warn that as a result of climate change, residents of the East Coast can expect to be affected in the future by more tropical storms. Hurricanes Sandy in 2012 and Irene in 2011, both of which affected residents of the Northeast, may in fact be the beginning of a period of tropical storms causing damage and loss of property to homeowners living along the East Coast.

What should homeowners do to protect themselves in anticipation of future storms? Homeowners should make complete inventories of their homes and their possessions. The Insurance Information Institute provides a free program that allows homeowners to make an inventory of their homes and their personal possessions. The program can be downloaded at www.iii.org/software. The application allows the homeowner to enter information about their possessions, including cost. All the information is stored remotely, meaning that if the information stored on the homeowner’s desktop computer or laptop is lost due to a flood or any other storm-related event, the homeowner will have a record of any lost or damaged home possessions.

Homeowners also should review their homeowner insurance policies and make sure they understand them. Most homeowner policies will pay for wind-related damages; however, some homeowner policies have a higher deductible that applies for wind-related damage resulting from hurricanes rather than from non-tropical wind storms. A homeowner insurance policy may also have a separate “hurricane deductible” which is a percentage of the home’s insured value rather than a fixed dollar amount. For example, if a home’s insured value is $300,000, then the policy could have a 5 percent “hurricane deductible” equal to 5 percent of $300,000, or $15,000. The hurricane deductible amount, as well as what is and what is not covered when it comes to hurricane-caused damages and losses, is stated on the homeowner insurance policy's declaration page. Also, some homeowner insurance policies that pay for claims related to hurricane-caused damages may not “kick in” unless the hurricane is “categorized” by the National Hurricane Center as a Category 2 hurricane or stronger.

Renters are also encouraged to keep records of their possessions. Renters who have renter insurance policies will be reimbursed for damages to furniture and other personal property caused by water, fire or wind damage.

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