With total damage estimates currently hovering somewhere between $30 and $40 billion, many of Houston’s nearly seven million residents are facing some sort of damage to their homes and businesses. In fact, it’s likely to end up one of the 10 most expensive natural disasters in U.S. history.
Despite this widespread damage, experts say that most of these homeowners will soon learn that they’re out of luck after filing a claim with their insurance carriers. Specifically, according to Enki Research, “only about 27 percent of Harvey’s losses are likely to be covered by private insurance.”
Why is this? And perhaps more importantly, in a similar situation, how can you avoid finding yourself uninsured or underinsured?
While homeowner’s insurance is an incredibly nuanced—and some might say boring—topic, we’re going to make finding answers about hurricane-related coverage as easy as asking four simple questions.
Question 1: What Type of Policy Do You Have?
The basics: While there are technically eight different types of homeowner’s insurance policies, the Insurance Information Institute reports that the most commonly used are:
HO-3 – For freestanding homes. Offers coverage for the main home itself, as well as detached structures, personal property, loss of use, liability, and medical payments.
HO-4 – For renters. Primarily covers personal property, liability, and medical payments.
HO-6 – For condominiums. Many of the same coverages as an HO-3, but with limited coverage for the structure itself, since this is typically owned by an HOA.
Why this could be important: The type of property you own determines the type of homeowners insurance you’re eligible for, which then determines the coverage available.
Here’s a quick example: Let’s say you recently installed new carpet in the first-floor condo you’re renting, which you have covered under an HO-4 policy. Wind-driven debris from a hurricane shattered your sliding glass door and allowed rain to enter, ruining all your hard work.
Since most renters policies don’t cover anything permanently attached to a structure, including flooring, your claim could be denied.
On the other hand, if you owned the condo and had an active HO-6 policy, this exact same scenario could be more likely to be covered.
Question 2: What Caused the Loss?
The basics: Among these homeowner’s forms, there two core ways they can be written:
Named Perils – Provides coverage only for the specific perils, or causes of loss, outlined in the policy language. The 16 perils covered by most named policies include lightning or fire, hail or windstorm, explosions, smoke damage, falling objects, vandalism, and water damage from plumbing, heating, or air conditioning systems.
All Risk – On the other hand, an all-risk policy stipulates that coverage is provided unless specifically excluded.
Why this could be important: Whether or not your homeowner's policy covers hurricane-related damage depends on the proximate cause (how the loss or damage actually occurred), which is directly determined by the perils insured.
Here’s a quick example: During a recent hurricane, the water rose to a point where it shorted out a downed power line, which then arced and caught someone’s home on fire.
Since fire is what actually damaged the home and is a peril that’s expressly covered under both a named perils and an all-risk policy, it’s likely to be covered.
On the other hand, let's say the rising water causes a downed power line to short, thereby cutting power to a home. As a result, $1,500 worth of meat in the freezer spoils.
In many instances, this wouldn't be covered, since power failure is often specifically excluded on all-risk policies.
Question 3: Where Did the Loss Occur?
The basics: Certain sections under a homeowner’s policy, such as personal property (coverage C) and liability (coverage E), follow policyholders away from the named residence.
Why it could be important: Because of this, even if a peril is specifically named (or not excluded, as with all-risk), whether or not coverage is available under a policy could hinge on where the loss occurred.
Here’s a quick example: Your home flooded, so your friend offered to let you stay at their house and ride out the hurricane. While there, during a panicked moment, you caused them to slip, fall, and hit their head, leading to an ambulance ride and an overnight hospital stay.
During the ordeal, you also accidentally left a bag of clothes outside, causing them to become a rain-soaked ruin.
In both of these instances, since personal property and liability coverage follow an insured wherever they go, both of these losses could be covered—up to the policy limits, of course.
Question 4: What Are Your Coverage Limits & Policy Endorsements?
The basics: Under an HO-3 policy, most coverage limits are based on percentages of the dwelling limit (coverage A). So, if this limit is set at $500K, other coverages might look something like this:
Coverage B (Other Structures): 10 percent of coverage A, or $50K
Coverage C (Personal Property): 50 percent of coverage A, or $250K
Coverage D (Loss of Use): 20 percent of coverage A, or $100K
However, these coverages aren’t static, since they can be adjusted using endorsements, or attached documents that amend the policy contract in some way.
Why this could be important: Even if it’s determined that the cause of loss might be insured, the total amount of coverage available under the policy could impact how much you’re able to recoup.
Here’s a quick example: A few months ago, you had a new detached garage built. You decided to completely redo your backyard at the same time, adding a pool, decking, elaborate wrought iron fencing, and a large, ornate gazebo. All of these could be classified as other structures.
During the recent hurricane, strong winds blew down several trees in your yard, completely smashing your deck, fence, and gazebo, and creating gaping cracks in your pool. As we learned earlier, wind damage is typically a covered peril.
However, let’s say you didn’t notify your insurance company that you needed to increase coverage B to adequately cover all these additions. As a result—to continue with our example above—the loss might only be covered up to $50K, leaving you on the hook for much of your rebuild.
Another example: You had to evacuate your home due to flooding, and while away, it was ransacked and your grandmother’s expensive ring was stolen.
Most homeowners policies outline sub-limits for certain classes of property, such as jewelry. So, even if you had an all-risk policy covering the peril of theft, and your personal property (coverage C) limits were adequate, you might find that, in this example, you’re not fully covered.
The Bottom Line About Hurricane-Related Homeowner’s Insurance Coverage
As you can see, there’s no blanket answer to the question, “Will my homeowner’s insurance policy cover damage caused by a hurricane?”
Why? Because everything revolves around four key factors:
- The type of policy you have
- The cause of loss
- Where the loss occurred
- The coverage limits outlined in your policy
Are you looking for the easiest way to figure out if you’re potentially covered for hurricane-related losses?
Pick up the phone and call your agent or your insurance carrier directly. They can take a look at your policy, assess your level of risk, and counsel you on coverages and endorsements you should add based on your specific needs—which is something most professionals recommend doing at least once a year, anyway.
In the meantime, be sure to read about the six most overlooked homeowners insurance gaps, as well as how you can avoid financial ruin from natural disasters.