I thought the headline might get your attention, and as far as I know there is no such thing as 'tornado insurance.' Tornadoes are a hazard covered by a standard homeowner's insurance policy, but many people are ill prepared for a weather disaster such as what we saw recently in Oklahoma.
Rule #1 Make Sure You Have Enough Insurance To Rebuild
It is up to you to be sure that you have enough insurance in place to fully cover the loss of your home. If you recently purchased your home or refinanced, there is a good chance that your lender required you to purchase an appropriate amount of insurance, but don't rely on this. It is your responsibility as the homeowner to make this assessment and it can be confusing. The first thing that must be considered is that home values fluctuate and so does the cost of construction. In most parts of the country we have seen steep declines in the value of real estate, but in the last year or so we have seen prices beginning to come back. Throughout this roller coaster ride of valuations, you must realistically establish an amount of insurance that is appropriate year to year.
In my own situation, we purchased a foreclosed home a little over three years ago directly from a bank. The value is now about 80% more than we paid. Since we don't have a mortgage, there is no one prompting me to up the amount of my homeowner's coverage each year, it is solely up to me. A rule of thumb is to consider about 20% of the overall value of your home the land and 80% the structure (although this may vary based on your own individual situation). It is the structure that you are insuring, so that is the value you have to determine. Another way of dealing with this is to purchase replacement coverage. Here is a very good explanation of replacement coverage. Replacement coverage will cost you about 10% to 15% more but may be worth the added peace of mind.
Rule #2 Know The Value Of Your Home?
One website that can be useful in determining the value of your home is Zillow. Another option is to take a look at what similar homes are selling for in your neighborhood. Having an exact figure is not really necessary, but you want to at least establish a ballpark value (+/- 10%).
Rule #3 Be Sure You Have Enough Personal Property Insurance
As much as we have seen the values of real estate fluctuating wildly in recent years, an even more volatile number to come up with is your personal property value. If you lost your home and all of its contents, what would be the value of your personal property such as furniture, appliances, electronics, jewelry, musical instruments, artwork, clothing, collectibles, etc...? On this matter is is not only incumbent upon you to come up with an amount, but also to document what you own. Some of the videos from the Moore Oklahoma tornadoes show nothing but a slab left, and in those cases how would a person go about proving what the contents were that they lost? This is why it is a good idea to make a video of the contents of your home and store it somewhere away from the property. You may also want to inquire with your insurance agent about listing high value items individually on the policy (known as scheduling).
Do You Need Flood Insurance?
Insurance companies have been known to be very creative when it comes to finding reasons not to pay claims. Many times you may have a home destroyed by wind but accompanying that wind event is also a lot of rain and flooding. With these two perils working hand in hand, it may be really up in the air which was the primary cause of your structural damage. Did the wind weaken the structure first and then the flooding finished the job? Or was it the opposite? These are the kind of legal debates that took years to resolve after Hurricane Katrina. It is for this reason that I am generally an advocate of everyone having flood insurance. Here is my recent article on flood insurance.
Rent To Own? Be Careful. Check out this video below about what happened to one family that lost 'their home' and may now be cheated out of the insurance money. If you are strictly a renter, you should obtain a policy to protect you against the loss of your contents.
All Homeowner's Policies Are Not Created Equal
You will find differences in a variety of nuances in a standard homeowner's policy. This is especially the case when it comes to issues such as providing money for living expenses while your home is being rebuilt.
Are You Dealing With A Solid Insurance Company?
When you consider that some of these weather events can be in the millions (or even billions) it is very important to be sure that you are dealing with a financially stable insurance company and one that enjoys reasonably good customer service ratings as well. I found this article to be very informative, covering both financial strength and customer reviews. For insurance company ratings, you can go to A.M Best or Moody's.
Shopping for Homeowner's Insurance Online
Other Elements Of Homeowner's Insurance
The primary focus of this article is on damage or destruction of your home, but when purchasing homeowner's insurance you should also be aware of the liability coverage. This is what the insurance would pay if someone is injured or even killed on your property. Everything from a slip and fall to a dog bite, to even a drowning in a family pool would all be potential areas where claims could be made against you. The amount of liability insurance you carry is very much an individual decision, but most people suggest at least a minimum of equal to your overall net worth.
If you have ever had tornado damage, please use the comments section below to share with us your story and what advice you would pass along.
Helping you make the most of God's money!