Many Homeowners Lack Adequate Insurance for Disaster Coverage
When disaster strikes, many homeowners are finding they lack sufficient property insurance to cover their losses, a growing problem highlighted by recent wildfires in California and hurricanes in the Southeast. Spotlight on America correspondent Angie Moreschi delves into why this could be a significant issue for you.
In the aftermath of a hurricane, many homeowners are left to rebuild their lives and discover they didn’t have enough insurance to cover their losses.
A recent study from the University of Colorado Boulder revealed that three out of four victims of the 2021 Marshall Fires near Denver were underinsured. The situation often leaves homeowners with the daunting task of rebuilding their lives without the necessary financial support.
“Most people are surprised by this,” Emily Gallagher, co-author of the study and assistant professor of finance at the University of Colorado, told Spotlight on America. “It can be quite devastating. You’ve just lost your home, you’ve lost just about everything you have, and to realize that you’re going to be relying on charity.”
Gallagher’s research shows that homeowners tend to focus more on premiums than on the coverage limits. This lack of attention can lead to significant financial challenges after a disaster.
Doug Quinn, executive director of the American Policyholder Association (APA), knows this firsthand. His New Jersey home was severely damaged by Hurricane Sandy in 2012.
“It was devastating. It changed the whole course of my life,” Quinn said. “It took me seven years to get back home and I was fully insured.”
Quinn’s experience led him to found the APA, an organization advocating for homeowners. He’s seen the shock on the faces of victims who realized they didn’t have enough insurance following the recent hurricanes and wildfires.
“It’s a shock because many people sort of have this belief that I have insurance, everything’s going to be okay,” Quinn said.
Understanding your insurance policy is critical. It’s important to review your policy, especially when it’s time to renew. There can be exclusions or changes in coverage.
When setting your policy limits, estimate replacement costs, not market value. Inflation on labor and supplies can increase expenses. It’s advisable to compare quotes from different insurance carriers.
Gallagher found that many homeowners, including herself, didn’t compare policies.
“All of the issues I’m talking about, I was subject to those exact same issues. I went with whatever the agent told me. I didn’t get any outside estimate of what it would really cost to rebuild my home,” Gallagher said.
Cheaper coverage can leave you vulnerable in case of disaster. Homeowners need to be aware of the risks they take when choosing lower premiums.
Also, be aware that to cover flooding you need a separate policy. According to FEMA, 99% of counties nationwide have been impacted by flooding, but only about 5% of homeowners have flood insurance.
“They’re forced to make a new set of decisions on what am I going to do? Will I be able to rebuild my home? Do I have to just sell my property at a loss?” Quinn said, explaining the impossible situation so many recent disaster victims face. “You will have to go into debt. You’ll have to use your personal savings, your college funds for your children, your retirement money. Hopefully, you’ll be able to apply for some form of federal aid.”
Insurance policies often feature different levels of coverage. Understanding the difference between replacement value and actual cash value coverage is important.
Most policies cover replacement value for the structure of your home but not automatically for contents. Actual cash value, which is cheaper, subtracts depreciation.
Liability coverage is another important feature. It covers you against potential lawsuits. Gallagher hopes that her study can help raise awareness about the underinsurance crisis so that homeowners can better prepare for the future.
“They’re just learning after the disaster that they’re underinsured, which means they weren’t able to plan for it, and they didn’t prioritize things the way they might have had they realized they were underinsured,” she said.
