Five Insurance Reminders From Superstorm Sandy

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Published December 21, 2012

| Bankrate.com

Sandy's lasting lessons about insurance

The beating taken by Superstorm Sandy's victims in the Northeast was followed by some stinging slaps, including lengthy power outages, gasoline shortages and potentially costly insurance surprises.

People whose lives were torn apart by the storm have discovered that their complete lack of flood insurance, or gaps in their homeowners insurance or car insurance, will make it difficult for them to put things back together again.

Or maybe they didn't keep good records of their belongings and have had a hard time documenting their claim.

So take the time now to read through your insurance policies. Know exactly what coverage you have. Talk to your agent if you're unclear. And be sure to review these other important insurance reminders we can all learn from Superstorm Sandy and the aftermath.

Five reminders from Sandy: Flood insurance

Superstorm Sandy served as a harsh reminder for many of its victims that only flood insurance covers losses from flooding, not homeowners insurance.

A 2012 survey by the Insurance Information Institute, a New York-based trade group, found that just 13% of U.S. homeowners had flood policies, including 14% in the Northeast, where Sandy struck.

Do you need flood insurance? It depends on where you live and if your mortgage lender requires it. Many do, especially if they are in a floodplain and their mortgage is federally backed, such as by the Federal Housing Administration.

The Federal Emergency Management Agency, or FEMA, administers the National Flood Insurance Program, the primary source of coverage for homeowners and renters.

FEMA says everyone is at risk because even small streams can flood. Your insurance agent and lender will know whether your home is in a flood zone.

Only then will you really need the coverage, says J. Robert Hunter, insurance director for the Consumer Federation of America.

Incidentally, Hunter, who once ran the National Flood Insurance Program, doesn't have flood coverage for his home near Washington, D.C. "But I'm at the very apex of a hill, and the Potomac River is 50 feet down," he explains.

In the wake of Sandy, consumer advocates have been sounding an alarm about something called "the anti-concurrent causation clause," found in many homeowners insurance policies.

Basically, this clause means if your home is damaged by both something you're insured for, such as wind, and something you're not covered for, such as a flood, your insurance company may not pay for the loss.

But there is no single definition for the clause, says University of Minnesota law professor Daniel Schwarcz, an insurance law specialist who also is a consumer representative to the National Association of Insurance Commissioners.

Coverage varies, terms differ, and your insurance agent may have difficulty explaining how the clause is enforced, Schwarcz says.

After Hurricane Katrina walloped New Orleans in 2005, these clauses became the subject of lawsuits, at least partly because the damage was so severe that it was tough to tell whether wind or water caused it, says attorney Randy Maniloff of White and Williams in Philadelphia, who represents insurers.

He doesn't expect that to be the case with Sandy-related claims because it should be easier to determine what caused the damage.

Meanwhile, be sure to review the "exclusions" section of your homeowners insurance policy, which explains what's not covered.

Five lessons from Sandy: Homeowners insurance

In the wake of Sandy, consumer advocates have been sounding an alarm about something called "the anti-concurrent causation clause," found in many homeowners insurance policies.

Basically, this clause means if your home is damaged by both something you're insured for, such as wind, and something you're not covered for, such as a flood, your insurance company may not pay for the loss.

But there is no single definition for the clause, says University of Minnesota law professor Daniel Schwarcz, an insurance law specialist who also is a consumer representative to the National Association of Insurance Commissioners.

Coverage varies, terms differ, and your insurance agent may have difficulty explaining how the clause is enforced, Schwarcz says.

After Hurricane Katrina walloped New Orleans in 2005, these clauses became the subject of lawsuits, at least partly because the damage was so severe that it was tough to tell whether wind or water caused it, says attorney Randy Maniloff of White and Williams in Philadelphia, who represents insurers.

He doesn't expect that to be the case with Sandy-related claims because it should be easier to determine what caused the damage.

Meanwhile, be sure to review the "exclusions" section of your homeowners insurance policy, which explains what's not covered.

Five reminders from Sandy: Hurricane deductibles

Sandy has been a wake-up call for people in 18 coastal states and the District of Columbia who didn't realize that homeowners insurance policies in their region may include a special and separate deductible just for hurricanes.

A standard home insurance deductible typically is a straight $500 or $1,000. But hurricane deductibles can be much steeper, ranging from 1% to 5% -- maybe more -- of a home's insured value.

If your home is insured for $200,000 with a 1% hurricane deductible, you'd be responsible for paying $2,000 of the storm's damage.

The hurricane deductibles became controversial during Sandy when governors of several states prohibited insurers from imposing them. The governors pointed out that, technically, the storm didn't hit land as a hurricane but as a post-tropical cyclone.

Insurers may have to rename their "hurricane deductibles," says Loretta Worters, a vice president with the Insurance Information Institute.

"Some states use named-storm deductibles instead of hurricane deductibles or certain wind speeds, so there is still some discussion with this issue," she says.

The deductibles are intended to keep the cost of insurance lower in coastal areas, Worters notes.

Check how your deductible is worded.

Five reminders from Sandy: Your car insurance

People can be tempted to drop the comprehensive coverage from their car insurance, particularly when their vehicle is old. However, if a storm as powerful as Sandy plants a tree on your car, you'd need comprehensive for that.

The coverage pays for damage from something other than a collision. So, comprehensive covers things such as falling objects, earthquakes, hail, windstorms, floods and even a run-in with a moose, according to the Insurance Information Institute.

If your car's damage from an event such as Sandy is severe enough that it's not worth repairing, your insurer will pay you the vehicle's "actual cash value" -- the amount of money you could have sold it for before it was ruined.

Comprehensive coverage deductibles typically are $100 to $300. With a higher deductible, you'll lower your car insurance premium.

Five reminders from Sandy: Home inventory

Whenever a big storm like Sandy approaches, you should list and photograph or take video of your belongings. Gather receipts for each item, if possible. This home inventory will make it much easier to process your homeowners or renters insurance claim if there is damage.

You can keep the information stored on your computer or on an external hard drive or flash drive that you keep elsewhere in a safe place, such as a safe deposit box. The Insurance Information Institute offers a free "Know Your Stuff" inventory tool, either as software or a downloadable smartphone app, which allows you to store your photos and documentation online.

Regardless of how you keep track of your home inventory information, having easy access to it will be a huge relief if your insurer's adjuster wants to know about your belongings.

The American Red Cross says you also want to safeguard insurance policy documents. Keep copies of your policy with you in a watertight container or plastic bag. Consider keeping an extra copy wherever you store your home inventory.

As Superstorm Sandy victims learned, it's important to make sure you have contact information for your insurance agent with you.

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