I hope all Consumerism Commentary readers affected by Hurricane slash Extra-Tropical Storm slash Low-Pressure System Sandy are alive and safe and have avoided damage. I lost power for sixteen to eighteen hours, and although I live near a canal, flood waters didn’t reach me. Many of my local friends are still without power, and my heart goes out to families elsewhere who have suffered significant damage or worse.
It’s a good idea to check your insurance coverage before an approaching storm arrives if you’re not intimately familiar with its terms. Naturally, I didn’t look at my coverage until after Sandy had passed. I’m not a homeowner, so life isn’t all that complicated for me when it comes to insurance. I’ve been a renter of apartments throughout my adult life, but I didn’t have renters insurance until a few years ago. It’s inexpensive, so there’s no excuse for not having renters insurance for ten years. I can’t correct the past, only make better decisions today and in the future, so I’ve moved on.
I chose my insurance initially by calling AAA, the automobile membership club, who acts like a broker, for car insurance. They helped me find good private car insurance coverage once I was eligible for coverage not managed by the state, and my own shopping around revealed the price comparisons offered by AAA matched my expectations. The best deal was with Liberty Mutual insurance. When looking for renters insurance, I chose to work directly with Liberty Mutual, taking advantage of the multiple policy discount in addition to other discounts.
When I enrolled for renters insurance, I answered a few questions about my material possessions. Because the structure in which I live is theoretically covered by the landlord’s own insurance policy, renters insurance focuses on two main coverage categories: personal property and liability.
The personal property coverage should cover the replacement costs for household items, whether they are damaged or destroyed inside or outside the home. This policy hasn’t been updated in several years, and I may want to call to ensure I have enough coverage. There are some important limits to this coverage, however. For example, if I were to keep cash or precious metals in my home, this insurance coverage would only coverage loss of up to $200. That wouldn’t cover even one gold bullion round. I don’t own any gold, but if I were to own some, and for some reason wanted to hold it outside of a safety deposit box at a bank, this would be a concern.
Property coverage does have tight limits on property in the home used for business purposes — but that’s what business insurance is for.
When it comes to approaching hurricanes and storms, the insurance covers damage to property only if the force of the wind causes an opening in the wall or roof. Many people feeling the effects of the hurricane are experiencing loss related to water entering their living spaces, and this damage — flood damage — is not covered by typical renters insurance. Water damage is specifically excluded from my coverage, even if the water is driven by wind, as it would be in a hurricane. Damage resulting from water backing up through sewers and drains is not covered.
The policy includes very specific limitations related to floods, but points out that if I happen to live in a participating community, I could buy separate flood insurance from the National Flood Insurance Program. This is a program run by the Federal Emergency Management Agency (FEMA), a division of the U.S. Department of Homeland Security. Unless or until FEMA is dismantled by the government, you can buy flood insurance from the government through your insurance agent. Despite Sandy this year and Irene last year, and despite local communities being subject to flooding due to the proximity to a canal, my location is not prone to flooding, so I don’t need this coverage currently.
If any of my personal property had been damaged by power failure, this also would not be covered. I take this to mean, among other things, that I can’t enter a claim for any food that might have spoiled in my refrigerator during the eighteen hours I was in the dark through hurricane Sandy’s effects.
Update: If you have hurricane coverage, be sure to check how the policy defines the term “hurricane.” For example, when Sandy made landfall, NOAA did not consider the storm to be a hurricane. This can end up being good for homeowners, because hurricane policies often have a separate deductible. The deductible might not apply if any particular storm was not technically a hurricane when it caused the damage.
The personal liability coverage takes effect if I were to be sued for damage due to bodily injury or property damage, and there are specific limits to this type of coverage as well. Again, business insurance covers many of the potential holes left open by renters insurance. If I were to keep a watercraft or aircraft in the residence for some reason, liability coverage would not extend to circumstances related to those items.
Additional coverage in my renters insurance plan include credit card fraud, additional coverage for personal property so that the plan will pay for the full replacement cost rather than the “value” of the items when damaged, mold coverage, and Worker’s Compensation.
Last year was the first time I’ve experienced an earthquake on the east coast. Quakes aren’t normally expected in my area of the country, and one with the epicenter in Virginia last year took people by surprise. It is possible to get renters insurance or homowners insurance that covers earthquake events, but my insurance company goes so far as to warn against it:
Historically, earthquakes in New Jersey are a rare event, although the possibility exists that it could happen. Over the five year period from 1997 to 2002, for every $1 of earthquake insurance premium, 3/10 of one cent has been paid out for losses.
It’s just not a good deal, and the company is admitting as such. Compare the 0.003% rate of coverage value to what’s expected with health insurance. The Affordable Care Act specifies that health insurance companies should spend 80 percent of collected premiums on coverage. That said, it sounds like earthquake insurance could be quite a profitable business, at least here in New Jersey.
How did your household fare if affected by Hurricane Sandy? What damage would be excluded from your homeowners or renters insurance? It’s good to know the details of your coverage before the next natural event.
Updated October 31, 2012 and originally published October 30, 2012.