It’s fitting that March “comes in like a lion”; it’s the official start of tornado season in the United States. While the approximately 1,200 tornadoes that touch down each year can happen at any time, the highest concentration occurs from March through June.
Tornadoes wreak about $14 billion in damage annually. While wind causes the most dramatic damage, the hail and flooding that often accompany them can be more widespread and costly in terms of damage to residences and vehicles.
So how do you use your home and car insurance to protect you from the costs of tornado damage?
The good news is that your home, condo, or renters insurance will usually cover you for wind and hail damage (but always check to be sure it does!). But if you live in a tornado-prone area, there are some limitations to a standard policy that you should consider addressing. Use these four tips to plan your coverage strategy wisely.
- The insurance-to-value clause. Make sure your house is insured for at least 80% of the amount it would cost to rebuild it. Otherwise, if it’s destroyed, that clause that would reduce the amount of your claim payment by the amount you are underinsured.
- Catastrophe pricing. Demand often drives up labor and building supply costs after a catastrophe. For example, wages for construction workers can spike by 50%. Even if your home is insured to value, the cost to rebuild it may be much more than you are insured for. Consider adding a Guaranteed Replacement Cost endorsement to your homeowners policy. It will cover the full cost of rebuilding your home, even if the amount it takes to do so exceeds your policy’s Coverage A limits.
- Depreciation of the value of your personal property. Most policies pay claims based on the actual cash value of your property (e.g., furniture, appliances, clothing, tools, etc.). That means that your claim check would reflect the depreciated value of your property. If, for example, you bought a kitchen table for $800 12 years ago, it may now be valued at only $200. Once your home policy’s deductible is applied, your claim check could be much smaller than you had anticipated. A better bet is to get a Replacement Cost on Contents endorsement that changes the claim settlement basis to the amount it would take to replace your damaged or destroyed property with new items of the same type and quality.
- Flood damage. Basic home, condo, and renters policies do not cover damage caused by floods — even floods caused by heavy rain. Make sure you have flood coverage from the National Flood Insurance Program.
If your vehicle’s insurance policy includes “Comprehensive” or “Other Than Collision” coverage, it would pay for damage caused by hail, wind-driven debris, falling trees, flooding, and more. Check your policy to make sure you have this important coverage.
Mind the Gaps and Gotchas
Standard home insurance policies have coverage gaps, such as no coverage for flood damage and “gotchas” like the 80% insurance to value clause that can either eliminate coverage or greatly reduce your claim payment.
Our Risk Coaches™ are licensed insurance professionals who are trained to look at coverage from your perspective. They’re glad to help you navigate the often-perplexing world of insurance coverage. Contact your local Risk Coach professional or call us at 800.342.5342, Monday through Friday from 8:00 a.m. to 8:00 p.m. ET.