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Home insurance: Heavy rain, heavy burden

Homeowners beware. Extreme rainstorms are on the rise in several states, a May 2012 report shows, and the insurance claims fallout can be tough for consumers to weather.

“The difficulty with any kind of water damage is it’s generally very expensive,” says Carole Walker, executive director of the nonprofit Rocky Mountain Insurance Information Association, based in Colorado.

Furthermore, water damage caused by flooding isn't covered by standard homeowner's insurance policies; separate flood insurance is required. “There’s a lot of confusion about water damage being covered and how flooding is defined,” Walker says.

It's raining, it's pouring

rain-home_insuranceExperts say consumers should learn the ins and outs of water damage coverage because so-called extreme storms are on the upswing – and that trend will continue into the future.

“Extreme storms around the globe, but particularly in the Midwest, will be increasing,” says Stephen Saunders, president of the Rocky Mountain Climate Organization and primary author of the report, “Doubled Trouble: More Midwestern Extreme Storms.”

The report found that the yearly frequency of extreme storms – defined as those that dropped at least 3 inches of rain in one day – has gone up by 103 percent in the Midwest in the past 50 years. And the report shows a link between the rise in storms and a deluge of flooding in that part of the country – for example, the record-setting floods of 2008, which caused $16 billion in damage.

Floods are to the Midwest what hurricanes are to the coasts, the report says, and heavy rains can cause flash floods or can lead to widespread flooding. For this report, the Midwest encompasses Illinois, Indiana, Iowa, Michigan, Minnesota, Missouri, Ohio and Wisconsin. However, the issues underscored by the report could be applied to any state that receives significant rainfall.

What’s covered?

If water pours down on your house from above, damage likely will be covered by a standard homeowner’s insurance policy, although there are exceptions.

“If a storm causes physical damage to the structure of a house from an insured event – like wind blowing a hole in the house – and rain or snow comes into the house and does damage, that’s going to be covered (by homeowner’s insurance),” says Jeanne Salvatore, a spokeswoman for the nonprofit Insurance Information Institute.

Rain can trigger other severe weather incidents – such as lightning and hail – and any damage they cause also should be covered, experts say.

“Lightning strikes are very common throughout the United States, and if lightning causes a fire or damage to your home or structure, that’s something you’re likely to have coverage for,” Walker says.

She adds: “With almost every tornado and thunderstorm in certain areas of the country, especially in Colorado down through Texas, where we’re considered Hail Alley, we get some of the most damaging hail anywhere on Earth. The good news is hail damage is covered under a standard homeowner’s policy.”

But if water seeps into your house from the ground up, the damage typically would be covered only under a separate flood insurance policy offered through the National Flood Insurance Program, which is administered by the Federal Emergency Management Agency (FEMA).

“Literally everyone should consider buying flood insurance,” Salvatore says. “The risk of a flood is far greater than people think.”

Weathering the storm

Experts offer these six tips on how to get ready for stormy weather:

1. Check your homeowner’s policy.

While no homeowner’s policy covers flooding, standard policies vary on coverage and exclusions for other storm damage. For instance, “wind-driven rain is excluded on most policies,” says Bob Freitag, president of AmeriClaims Inc., a North Carolina company that represents consumers in claims negotiations after floods and other disasters. That exclusion, he says, applies to water that causes damage but didn't enter a property through a storm-damaged area on the exterior.

2. Consider adding a sewer/overflow endorsement.

Most homeowner’s policies don't cover water overflow. One example: Heavy rain falls, and your sump pump can't keep, so it overflows. Brian Rauber, a Farmers Insurance agent in Missouri, says you can add a relatively inexpensive endorsement to your policy to cover this. People assume such overflows already are covered by standard home insurance policies, but they're not, he says.

3. Look at your flood risk.

“It’s easy to determine your risk by going to FloodSmart.gov,” Salvatore says. “Put in your address, and it will tell you your risk and how much flood insurance will cost.” The site also offers a list of private companies authorized to sell flood insurance.

4. Consider flood insurance even if you’re not high-risk.

If you live in an area with a low to moderate risk of flooding, you can buy flood insurance at a preferred rate. “Flooding generally occurs within the same types of locations – if you live along the stream or the creek or the ocean,” Walker says. “But we know that 25 percent of flood claims come from low- to moderate-risk areas.”

5. Figure out what your flood insurance covers.

Experts say some consumers assume flood coverage covers all types of losses, but that’s not the case. For example, according to FloodSmart.gov, coverage is available for just the structure or structure and contents, but certain items – such as money, precious metals and vehicles – never are covered.

6. Do routine maintenance.

After storms, homeowners should check for damage or leaks before rot or mold can occur. Any issue caused by faulty maintenance, or an issue that \occurs over time and isn’t noticed, likely will result in a denied claim, experts say.

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