Most Homeowners Are Underinsured

Lessons Learned From Hurricane Katrina

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Many insurance companies offer a dwelling coverage escalator. This feature automatically increases the dwelling limits in the policy each year. Ask your insurance company about this add-on, which can cost an additional $50 or so per year — a small amount to pay for additional peace of mind.


Flood Insurance

No standard home insurance policy will cover flood damage. Homeowners in flood zones can buy flood insurance under the National Flood Insurance Program through the Federal Emergency Management Agency, and claims are often serviced by your insurance company.

The maximum coverage available is $250,000 and the average cost is about $500 per year for $200,000 worth of coverage. If you need more flood insurance coverage, private insurers such as American International Group can provide policies with higher coverage limits.

Some owners of high-risk properties may have to resort to obtaining coverage through Fair Access to Insurance Requirements, or FAIR Plans, which are state mandated insurer organizations that cover high-risk properties in about 36 states.


Coverage for Loss of Use

One thing most homeowner's policies do cover is "loss of use." Many of the insured homeowners in New Orleans who were forced to evacuate their homes found that their costs to stay in a hotel and other related living costs were generally covered at an amount that is typically about 30 percent of the overall policy dwelling coverage.

So, for instance, if your home is insured for $200,000, you may be entitled to up to $60,000 in reimbursement for your expenses associated with your loss of use.

Keep in mind that if you do want to increase the amount of coverage on your home, you can't do so when the peril is upon you. Insurance companies generally place a moratorium on coverage changes in areas that are in the path of a storm, typically several days before the expected peril is forecast to strike.