MONEY Insurance

How Hurricane Katrina Changed Your Finances Forever

Walls and ceiling of house blown away, exposing living room, aftermath of Hurricane Katrina, Sulphur
Sian Kennedy—Getty Images Walls and ceiling of house blown away, exposing living room, aftermath of Hurricane Katrina, Port Sulphur, Louisiana

If you want to brave the storm, you'll first have to brave the insurance market.

Ten years ago this week, a storm gathered spin over the Gulf of Mexico and then let loose onto a city nicknamed the “Big Easy.” Hurricane Katrina was by far the most expensive storm in U.S. history: more than $150 billion in damages; hundreds of thousands of Gulf Coast residents displaced; the city of New Orleans broken down in floodwater and churned like bile. Levees that shouldn’t have broken did. Fences floated away. Living room walls took on water to the ceiling—if they remained standing at all.

Institutional structures proved similarly weak against the strength of the storm, most notably the insurance that was supposed to protect homeowners. Private insurance companies balked on payments: Two years after the storm, the New York Times reported that insurers had paid out an estimated $900 million less in coverage to the approximately 160,000 families who lost their homes in Katrina than the state of Louisiana believed those families were owed.

Anticipating that Katrina would not be the last storm of its kind, insurance companies began to restrict coverage, boost deductibles, refuse policy renewals, and raise premiums. By September 2007, many homeowners along the Gulf Coast and Eastern Seaboard had seen their premiums triple; over the past decade some New Orleans residents have faced fivefold increases. Meanwhile, the National Flood Insurance Program, having taken on the risk that private insurance companies shunned, incurred debts to the tune of $18 billion.

Fast-forward to October 2012. That’s when Hurricane Sandy, the largest Atlantic hurricane on record, made landfall in New Jersey. Sandy was about a third as costly as Katrina, but many of the storm’s victims fared no better with their insurance companies. In May of this year, evidence that fraudulent damage assessment reports may have been used to lowball insurance payouts prompted FEMA to announce that all of the 140,000 families who filed flood insurance claims in the aftermath of Sandy would be given the opportunity to have their files reviewed. The announcement comes after a three-year period in which, even with the passing of the Flood Insurance Affordability Act in 2014, homeowners have seen flood insurance premiums soar. And increases are only going to keep coming: as of April 2015, premiums may rise as much as 25% per year for those in the riskiest flood zones, thanks to a congressional act aimed at alleviating NFIP’s now $24 billion debt.

The bottom line: For homeowners, navigating the insurance market is ever more challenging—and expensive. Between 2003 and 2013, the average premium climbed 69%, to more than $1,000 a year. But with the increasingly unpredictable weather that comes with climate change, and the number of catastrophic storms on the rise, such protection is also more necessary than ever. Here’s what you need to do.

Don’t skimp on flood insurance. If you own a home in a high-risk zone, Congress has mandated that you must have flood insurance to obtain an insured or federally backed mortgage. If it’s not required, you may be tempted to skip it. That’s a bad idea; homeowners who live near water should have both building property and personal property flood insurance, recommends the Insurance Information Institute.

If you do live in a high-risk zone, you may actually want to opt for excess flood insurance. Coverage by the NFIP maxes out at $250,000 for your home and $100,000 for your personal property. Excess insurance can boost that up another $500,000—coverage you will need if it would cost you more than $250,000 to replace your home.

Read the fine print. It’s always been crucial to know the details of your policy, but insurers’ narrowing of coverage in recent years has only made it more so. For example, does your policy cover “actual cash value coverage” or “replacement cost coverage”? Actual cash value takes into account depreciation when reimbursing you for losses; replacement coverage, though it costs about 10% more on average, goes all the way.

What are the caps and limitations on your coverage? The age of your roof may affect how much you’ll get toward replacing it, or your screened-in patio may not be covered.

Are there filing rules that you need to follow to get your insurance checks? Your policy may require that you notify your insurer of your intent to replace within six months—or, stricter yet, complete the work within six months, which may be a struggle following a major disaster. You can ask for an extension, and if denied, file a complaint with your state insurance department, but if both fail you could be out thousands of dollars.

And finally, in the event of disaster, will your coverage pay for a replacement house that meets modern building codes? If your home is more than 10 years old, you’ll need to allot as much as 20% of your dwelling coverage toward expenses associated with keeping up to code.

Pay attention to deductibles. Most homeowners’ policy deductibles are flat-rate deductibles, usually ranging from $500 to $2,500 (some advocate for much higher). There are exceptions though. Hurricane deductibles—which became more common after Katrina and are now available in 19 states and D.C.—are calculated as a percentage of the home’s value, usually from 1% to 5%.

On a $300,000 home, a 5% deductible means you’d be responsible for $15,000 out of pocket. That’s a lot more cash than the average policy deductible requires you to have on hand, so it’s important to have a plan for where that will deductible will come from if you end up needing it.

Document, document, document! The best way to make sure you get the coverage you’ve paid for in the event of a weather disaster is to obsessively document.

First and foremost, you’ll need a full inventory of the contents of your home, including anything and everything of value. A written list is helpful (for major items, include receipts and serial numbers, if you can), but a list with pictures or video footage is even better. You can even download a free app like KnowYourStuff to help you organize and store the list.

And if you find yourself having to make an insurance claim, keep meticulous records of each step of the process. You may need to provide a rebuilding timeline to your insurer, for example, in which case you’ll need to keep track of meetings with contractors and when you apply for permits. The fraudulent engineering reports that seem to have been used to undercompensate Sandy victims would never have been discovered had homeowners not taken the initiative to keep original reports and follow up when their payments looked insufficient.

Be realistic about where you’re buying. As frustrating as the spike in insurance rates—or, in some storm-prone areas, insurers’ refusals to write sufficient policies altogether—may be, it also sends a message. High premiums signal that an area can be a high-risk place to dwell. If you’re considering buying property in a coastal zone or a “disaster prone” region, you may want to weigh your safety—and your future finances—against that ocean view.

MONEY Credit

Homeowners With Bad Credit Will Pay Double for This Required Expense

The difference could be thousands of dollars.

It’s common knowledge that, in most states, one of the data points insurance carriers use to determine your premium is your credit score. The companies say lower scores are correlated with higher risk, which justifies charging higher rates; consumer advocates like the Consumer Federation of America contend that the practice is unfair and inflicts an onerous burden on low-income Americans.

What many people might not know, though, is that a similar link between credit and pricing exists in the homeowners’ insurance market—and if your credit is poor, you could take a serious financial hit.

A new survey from InsuranceQuotes.com finds that, on average, people with poor credit pay double what people with good credit pay for their homeowners’ insurance. That’s bad news, but what’s worse is that insurance companies in most states are relying even more heavily on credit scores today than they did in the past.

As in the car insurance market, only the states of California, Massachusetts and Maryland prohibit carriers from factoring in credit when they develop their underwriting formulas. (And Florida residents luck out; although the practice is allowed there, InsuranceQuotes finds that insurers there don’t really use it.)

In other states, it’s pretty much a crapshoot. While residents of New York with poor credit only pay 37% more, West Virginia homeowners with poor credit pay an eye-popping 202% more. In Washington, D.C., poor credit earns you a 185% premium hike, on average, which adds up to nearly $3,150 a year. By contrast, D.C. homeowners with good credit pay an average of $1,100 a year. In terms of dollar amounts, Texans with bad credit pay the most: more than $4,350 a year, on average.

Even the discrepancy among people with great and just-OK credit can be significant. While the average across the country is a 32% premium for mid-tier credit, that can climb to as high as 66% for Montana residents.

“They’ve done studies and found that consumers with low credit file more claims, so there is a statistical relationship,” says Laura Adams, InsuranceQuotes’s senior analyst. She acknowledges, though, that many people find the practice controversial, especially as insurance companies are weighting credit more heavily today. The survey found that 29 states, plus Washington, D.C., place more emphasis on credit now than they did a year ago.

Homeowners are caught in a bind, since mortgage lenders typically require homeowners to carry insurance, even though filing a claim can also increase the likelihood that your rate will rise, regardless of your credit.

“I think the takeaway here with consumers is to just get familiar with it, and do everything you can to improve your credit,” Adams says. If your credit has improved, ask your insurance carrier to re-rate you, she suggests. A higher score could mean a lower rate.

Get answers to your questions about credit and debt:
What Is My Credit Score and How Is It Calculated?
How Can I Improve My Credit Score?
Which Debts Should I Pay Off First?

MONEY homeowners insurance

Home Inventory Apps Help Protect You in Case of Disaster

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Leren Lu—Getty Images

Making an inventory of everything in your home helps verify your losses and speed insurance claims.

Home inventories are one of those things everyone knows they should compile but few people actually end up completing. Creating a home inventory can be a very long and tiresome process, which is why so many people avoid them.

Having an accurate inventory allows you to have some peace of mind should anything terrible ever happen to your home or belongings, like a hurricane, flood or fire. Luckily, apps can help speed up the home inventory process while keeping your information in a safe and accessible place. Some of these apps were developed by individual insurance companies, while others are independent of any particular insurer.

Non-Branded Apps

The Know Your Stuff® – Home Inventory app was developed by the Insurance Information Institute and anyone can use it for free. This app is accessible on Apple or Android devices, or on your computer.

Know Your Stuff allows you to record all of the relevant information you should need if you ever have to make an insurance claim. For each item, you can attach an image of the item, a copy of your receipt, an image of an appraisal (if you have one), the name of the item, which room the item is located in, what category the item fits in, how many of the item you have, the purchase price, the replacement cost or appraised value, the date and place you purchased the item as well as the make, model, serial number and description of the item. It will take a good bit of time to record all of this information, but the app organizes it all in one location where you will not lose it.

When you need to access your list of items, the app allows you to view your items by room or by category. Additionally, you can view a complete list of all of your items. This allows you to determine easily if you need to remove any discarded items or add any newly purchased items.

The Know Your Stuff – Home Inventory app even allows you to keep inventories of multiple locations, which can be extremely helpful if you have a rental property or vacation home. While this is the most comprehensive home inventory app we could find, the user interface is not as polished as some of the branded apps below. Remember, it is the information you record and how can you access it, not how pretty the app looks, that matters.

Branded Apps

Many insurance companies offer their own version of home inventory apps. In general, insurance companies do not require you to be a customer in order to download and use the apps they have created. Insurers provide these apps free of charge in hopes that you will consider awarding them your insurance business in the future.

Some popular branded home inventory apps include Allstate’s Digital Locker and Liberty Mutual’s Home Gallery. Be careful what you enter into these apps as insurance companies may have access to this information should you need to file a claim. If you accidently enter incorrect information into the app, it could hurt you. Additionally, these apps may not allow you to enter as much information as the Know Your Stuff – Home Inventory app.

Make Sure You Use The App You Download

No matter which app you choose to create your home inventory, make sure to actually complete the process and document every piece of information you think you may need. Make sure your app allows you to record the essential information needed by your insurance company to file a proper claim. You can always contact your insurer if you are not sure of their requirements.

More From MoneyTips:

MONEY real estate

Atlantic Hurricane Season Could Bring High Costs

Prepare your home and finances for a disaster.

Atlantic hurricane season runs from June 1 through November 30. While the 2015 season is expected to bring ‘below average’ activity according to NOAA, that still means six to 11 named storms. Homeowners in geographic areas susceptible to hurricanes should be prepared with homeowners’ and flood insurance. For more information about hurricane-proofing your finances, check out It’s Hurricane Season: 5 Ways to Disaster-Proof Your Finances.

MONEY Insurance

The $300,000 Reason You Should Shovel Your Walkway ASAP

Shalonda Earvin clears the sidewalk in front of her Union St. home in Norwich, Conn., Tuesday, Jan. 27, 2015. Earvin said this was her fourth time out shoveling since it started snowing.
Sean D. Elliot—AP Shalonda Earvin clears the sidewalk in front of her Union St. home in Norwich, Conn., Tuesday, Jan. 27, 2015. Earvin said this was her fourth time out shoveling since it started snowing.

Your municipality may have laws on snow removal, but you'll pay an even bigger price if somebody slips and falls on your property.

Find that shovel, snow blower or your neighbor’s kid if you’re in the Northeast. Thanks to winter storm Juno, your driveway and walkway are likely topped with a lovely coat of white snow that could cost you a pretty penny if you don’t clear it quickly.

“Property owners face legal obligations to keep their property clean, safe, and ice-free,” says Loretta Worters, vice president of communications for the Insurance Information Institute. “If you fail to shovel your sidewalk or other public walkway, and someone slips and falls, you could potentially face a lawsuit. In some states, you may have broken the law, too.”

You’re responsible not just for snow and ice on private walkways but also public ones that abut your land. If you fail to keep your premises safe, those who are injured on your property could sue you, says Worters. “If someone slips on ice because of a poorly positioned downspout, it is considered negligence,” she adds.

Some places like New York City and Bridgeport, Conn. have also enacted laws that make landowners responsible for keeping public sidewalks clear of ice and snow. Those who fail to follow the law can be fined. In New York, you could have to pay up to $150 and be subject to up to 10 days of imprisonment.

Often, places that have snow clean up laws will also have a time limit for when pathways need be cleared. “Some jurisdictions say that a property owner can wait a ‘reasonable amount of time’ before clearing, which is nebulous,” says Worters. “But in Boston, property owners have three hours after the snow falls to shovel.”

While it is a good idea to check directly with your local municipality to find out if snow clearance laws apply for your town and state, the safest route is to simply shovel your area within a few hours of the snowfall’s end so you can avoid both fines and litigation. After all, even in places that do not legally require you to clear the snow, such as Ohio, you can still face a lawsuit.

Since even the most vigilant shoveler may miss a spot, Worters also recommends having liability insurance coverage to pay the cost of your legal defense and any court awards (up to the limit of your policy) should someone slip on your property and sue you. Liability limits generally start at about $100,000, but the Insurance Information Institute advises that you purchase at least $300,000 worth of protection.

MONEY homeowners insurance

Why You Soon May Have to Pick Up More Home Repair Costs

measuring tape with money
Bart Sadowski—Getty Images

Insurers are moving from flat deductibles to higher ones based on the value of your home. Here's what you need to know about this change.

Two years after Superstorm Sandy, State Farm agent Jen Dunn is busy explaining new insurance math to her customers in upstate New York. Instead of the dollar-amount deductibles they have been used to for years, she is now writing their policies based on percentages.

For many, it means turning the typical $500 deductible into 1% of the insured value—for a $250,000 house, that means a gasp-producing $2,500.

“My clients who have been offered this initially say, ‘I don’t like this,'” Dunn says. But then she explains that the higher amount is usually offset by a lower annual premium. If they go years without a claim, they can save in the meantime.

Jason Corbett, 39, who lives in central Georgia, is using a 1% deductible. Because Corbett’s rural home is valued at slightly less than $200,000, it was a better deal than a flat $1,000 deductible. The difference between the two deductibles was only a couple of hundred dollars. However, he saved money by lowering his premium, so over time the difference in his out-of-pocket costs will be negligible.

If he had a $300,000 home and the deductible was double what he pays now, “that would be a different decision,” says Corbett, who writes a personal finance blog.

State Farm, the largest U.S. property and casualty insurance company by market share, says a “significant” number of its policies now have percentage deductibles. Other carriers, like Allstate Corp, USAA, and Nationwide, also offer the option to consumers in certain states, but the prevalence is not yet tracked nationwide. The practice is near-universal in Texas at this point, according to that state’s insurance office.

With a percentage deductible policy, things are a little different than the old-fashioned flat rate. Here are seven things you need to know:

1. Do not be afraid of high deductibles

You might be used to $500, but a higher deductible could actually be better for you.

“It’s a very smart move to buy high deductibles if you can afford it,” advises J. Robert Hunter, director of insurance for the Consumer Federation of America.

The main reason? Every claim you make against your homeowners insurance can raise your rates. One claim pushes it up an average of 9% and two claims will raise it by 20%, according to a recent study by insuranceQuotes.com. So you want to pay out of pocket for small claims anyway.

2. The 1% deductible is not a percentage of your loss

The new terminology makes people think of health insurance, but homeowner claims do not work that way, says Jim Gavin, director of insurance information services for the Independent Insurance Agents of Texas trade group.

Rather, the out-of-pocket deductible you have to pay before the company will cover any claims is based on a percentage of the insured value of your home—which is not the market value or the appraised value, but the cost of replacing your home should it burn to the ground and need to be rebuilt.

For example: If a kitchen fire damaged your $250,000 home with a 1% deductible, and it cost $5,000 to repair the damage, you would receive a check from the insurance company for $2,500 after paying the other half yourself.

3. Your out-of-pocket costs will regularly increase

Your $500 deductible stays flat forever, but a percentage deductible will go up incrementally over time as the insured value of your home rises.

Some homeowners may not even notice this, like Will Harvey, 34, of Tyler, Texas, who is five years into a 1% policy on his home. “If it went up, it wasn’t enough for me to remember it,” he says.

4. You will still have other deductibles on top of the basic rate

Many homeowners have add-on clauses like a 5% hurricane deductible that is common in coastal areas, or 2% for wind and hail damage. Many states require separate coverage for earthquakes and floods.

Those all still apply on top of the basic coverage for fire and theft, says Amy Danise, editorial director of Insure.com. So if you have any damage that is caused by a specified risk, you will have to pay out of pocket first for that.

5. Your might be able to pay down your percentile

If 1% is too much for you, you may have the option to accept a higher premium to lower out-of-pocket costs—going from 1% to half a percent or some other fraction. The value to you depends on how much your house is worth and how much you can afford to pay out of your savings if something goes wrong, says State Farm’s Dunn.

6. You can still shop around

Even in Texas, where almost every company offers a deductible of at least 1%, or sometimes up to 1.5% or 2%, some carriers still do things the traditional way. Texas insurance agent Criss Sudduth says the customers who might benefit more from a flat-fee policy are those whose premiums do not actually go down despite the percentage policy—either because the weather risks are too high or because their personal credit is bad.

7. You should still figure out your dollar amount

After years of hearing complaints from consumers who are confused, the Texas legislature passed a bill recently requiring carriers to explain what the percentage deductible translates into, in dollars.

In other states, if your carrier does not do this, you should find out the information yourself and write it on your declarations page, says Deeia Beck, public counsel and executive director of the Texas Office of Public Insurance Counsel.

MONEY Ask the Expert

How To Stop Your Home Insurer From Cheating You

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Robert A. Di Ieso, Jr.

Q: My friend had a tree fall on her house during a windstorm and told me she scored a huge insurance payout by using a public insurance adjuster. Would you explain how this works and if it’s worthwhile?

A: If you’ve ever made a home insurance claim, you’re already familiar with the standard operating procedure. The insurance company sends out an adjuster, who inspects the damage and comes up with the repair price that the company will pay to make things right. (You’ll first owe your deductible, of course.)

But that number isn’t written in stone. There’s often a negotiation over, say, whether the flooded air conditioning system gets repaired or replaced or the roof gets patched or completely redone. Also, the payout often grows as the work progresses and new costs are uncovered.

A “public” adjuster is a professional you can hire to help you through this process for a large (say, over $40,000) homeowner’s claim. “Maybe the insurance company wants to patch the spot where the vinyl siding got torn, but there’s no way to find an exact match for the siding, so you’d wind up with an obvious patch,” says David Barrack, of the National Association of Public Insurance Adjusters. “A public adjuster would push for complete siding replacement so the repair is invisible.” Similarly, public adjusters dig behind leaks, he says, for evidence of rot, soggy insulation and mold that some insurance company adjusters might not pursue when writing up a claim.

In short, a public adjuster seeks to maximize your claim.

But there’s a downside. Since the public adjuster is working for you, the cost is born by you—typically 10 percent of the claim total. Giving up $10,000 on a $100,000 claim takes a pretty big bite out of your project budget. So unless you simply don’t have the time—or you’re finding your insurer to be highly unreasonable about your claim—it’s usually a better financial move to handle the back-and-forth yourself. “You don’t need to know anything about home construction or materials pricing,” says Jeanne Salvatore, of the Insurance Information Institute. “Your contractor is an expert who’s already on site, working for you, and he certainly knows what needs to be done and how much it’s going to cost.”

 

Got a question for Josh? We’d love to hear it. Please send submissions to realestate@moneymail.com.

MONEY Insurance

5 Things to Know About Umbrella Insurance

Umbrella insurance covers you for liability risks you may not even have been aware of.

Even if you already have insurance for your home and car, you may not be adequately covered. This policy can help.

1. Without it, you could lose everything

If you cause a car accident and the other driver sues, your auto insurance covers you up to your personal-liability limit, which is likely between $100,000 and $300,000. Same goes for your homeowners insurance if the mailman slips on your steps.

An umbrella liability policy pays for settlements and legal fees above your limit. Without this insurance, your wages and assets are at stake (though in some states, retirement funds, pensions, and your home are excluded).

2. Liability risks are everywhere

“More than 80% of umbrella losses are auto-related,” says Ed Charlebois of Travelers Insurance. Even if you’re the safest driver, your teen probably isn’t.

Redoing your kitchen? Your general contractor may not adequately vet subcontractors for workers’ comp or liability.

Host a lot of parties? If a guest gets into a drunken-driving accident, the victim can come after you. Got a pool, hot tub, or boat? Employ a nanny or a housecleaner? Then you have risk factors.

3. You’re insuring against the worst-case scenario

The median jury award for vehicular accident liability cases is $21,000, found Jury Verdict Research. But the average is $306,000 — so some settlements are much, much higher. That’s why many financial planners say an umbrella policy is a must for those with significant net worth.

“Insurance is there to stop an accident from being a life-changing event financially,” says Redondo Beach, Calif., CFP Scott Leonard.

4. A lot of coverage costs very little

A typical homeowner with two cars can get a $1 million policy for $250 to $400 a year, reports the Insurance Information Institute.

“My rule of thumb is for clients to have coverage equal to one to two times their exposed net worth,” says Franklin, Mich., financial planner Bert Whitehead. (By “exposed,” he means assets vulnerable in your state.) That way you are not just shielding your money, but ensuring that the insurer will mount an aggressive defense.

5. You may need to juggle coverage first

Umbrella insurance usually requires specific liability limits on the policies it’s piggybacking — such as $300,000 per person on auto and $300,000 on home. So you may have to boost your coverage. Plus, some carriers extend an umbrella only over policies they have issued, says Jim Kuryak of Niagara National Insurance.

On the upside, bundling with one insurer can offset the added cost; it can shave as much as 20% off home and auto premiums.

MONEY homeowners insurance

After Sandy’s Flood: Family Still Struggling to Rebuild Finances

Photo: christopher sturman A growing family makes moving out of their cramped rental and back home all the more urgent for Michael Motherway and Jennifer Schanker.

Hurricane Sandy wrecked their home and their finances. A year later, this Staten Island family, like tens of thousands of others in the New York metropolitan area, is still struggling to recover.

On Oct. 29 of last year, as Hurricane Sandy was bearing down on the East Coast, Michael Motherway and Jennifer Schanker debated evacuating. Their nearly 90-year-old 1,200-square-foot house on New York City’s Staten Island was eight blocks from the water, and city officials were warning residents to leave the block or, better yet, to leave the island.

In the end, Motherway, a heating and air conditioning technician, and Schanker, an assistant in the trust department of a Manhattan bank, remained. The evacuation wasn’t mandatory, they reasoned, and the couple had heard similar warnings in anticipation of Hurricane Irene a year earlier, only to suffer no more damage than a few broken tree branches.

Motherway and Schanker, his partner of six years, figured they were far enough away from the beach to withstand this storm relatively unscathed too. The couple had plenty of company: Most of their neighbors decided to stay put as well.

As the day turned into evening, and the winds picked up, Motherway walked to the beach for a firsthand look. He came back around 7:30, reporting that the surf was impressive but that everything else seemed normal. Tired of the drumbeat of TV news, the couple switched channels, hoping to distract their 1-year-old daughter, Adriana. She fell asleep watching a movie about Alvin and the Chipmunks stranded at sea.

Around 8:15 p.m., Schanker heard a neighbor scream. Looking through the window, Schanker saw a woman jump out of a red hatchback that had been driving the wrong way down their one-way street, leaving the car door open as she ran toward the neighbor. Then the woman appeared to panic and reverse course, heading back to the car, just as two waves of seawater rushed down the avenue, one from either side.

Schanker watched, horrified, as water filled the car’s interior through the open door, forcing the driver to once again abandon it. Schanker never learned what happened to the woman but recalls, at that moment, “I knew we were trapped.”

Within minutes the water outside their house was several feet high. Frantically, Motherway and Schanker began moving their belongings to the second floor. By 9 p.m., the water level had reached eight feet. “The sea filled the world outside like a bathtub filled with water,” Schanker says. “We were literally in the ocean. Waves crashed against our house.”

As Schanker held her daughter, now awake and crying, the electricity went out, leaving the three of them huddled together on the second floor, the wind outside howling. Downstairs, they could hear pieces of furniture crashing together, the washer and dryer hitting each other. “We’re going to drown here, aren’t we?” Schanker asked Motherway.

Instead, around midnight, just before the rising water hit the second floor, it leveled off, then began slowly receding. The next morning the couple was able to wade through hip-deep water to safety, Adriana in Schanker’s arms.

Their home, though, was in ruins — one of more than 60,000 damaged in New York City that night. “Everything left on the first floor was destroyed — the couches, the boiler, the electrical panel, washer, refrigerator, tables,” says Motherway. There was structural damage too. The water warped the walls and caved in the flooring; part of the fence was swept out to sea.

Before it finally broke aparton land, Sandy would become the second-costliest hurricane in U.S. history, exacting nearly $70 billion in damages across 24 states. Of that total, $19 billion was in New York City, where the transit system was crippled and more than 1 million people were left without power.

The storm hit Staten Island with particular brutality, causing mass flooding and killing 24 people (286 died in all). Power outages lasted into January. A year later an estimated 27,000 on the island and throughout the New York/New Jersey area are still unable to return to their homes.

Count Motherway, 43, and Schanker, 37, in that group. The couple have spent the past year working with insurers and government agencies trying to come up with the money to rebuild their house. But the roughly $95,000 that insurers have paid out in claims to date is far short of the amount needed to repair the damage and bring the house up to newly stringent post-Sandy building codes — initial estimates put the price tag at $260,000.

They’re also in a serious dispute with their mortgage lender: While their payments had been suspended for the first six months after the storm, the bank is now demanding they resume sending monthly checks, plus make back payments — or else face foreclosure. Meanwhile, federal assistance to cover the cost of their temporary living quarters a few miles away has run out.

The couple acknowledge they’ve made some mistakes in dealing with the aftermath of Sandy that have exacerbated their financial troubles. Feeling overwhelmed, they initially ignored notices from the bank about their mortgage. Eager to begin repairs, they moved too quickly to clear out the damage from the storm, which made it difficult for insurance adjusters to accurately assess their claim. And they’ve borrowed heavily to replace personal belongings that weren’t covered by insurance. All told, their expenses exceed their take-home pay by about $3,000 a month.

Returning to their house remains the couple’s top priority. Currently the family — Adriana is now 2 and Michael John was born in September — is living in an apartment so cramped that Motherway sleeps on a mattress on the living room floor. To get back home, though, the couple will first need to square things with the bank, bridge the gap between what rebuilding will cost and what insurers have been willing to pay, and reverse their budget deficit.

Schanker would rather focus on other goals — she’d love to get married, maybe talk about having another child — but says there is no way the couple can even discuss such major moves while they’re still in post-storm recovery mode.

“We are in limbo,” says Schanker. “We just want to move forward already. I’m tired of being a Hurricane Sandy victim.”

Motherway opens the front door to the house at 820 Nugent Ave., cautioning a visitor to watch his step. Inside the entryway, there is no good place to stand. The floor is gone, the pebbled earth visible through the floor joists. Electrical wiring snakes haphazardly across the room. The only interior wall left separates the main space from the laundry room. The place smells faintly of mildew.

Like Schanker, Motherway is frustrated by the slow pace of recovery. “I want to go in and fix this house,” he says. “I’m handy. With help, I could put down subflooring, insulation, piping. But I don’t want to get killed by the whole insurance thing.”

Motherway and Schanker walk out to the backyard, a gravelly area now overgrown with weeds and strewn with debris deposited by Sandy. During the storm everything in the yard was violently tossed about and the couple’s barbecue grill ended up on the fence, suspended over their neighbor’s property. The battered Weber still rests there. It’s symbolic, says Schanker. “Mike is just not ready to let that grill go.”

In the first days after the storm, with the nation’s attention focused on them and their neighbors, Motherway and Schanker had reason to believe their lives would return to normal faster. Through a co-worker, Schanker quickly found an apartment nearby to live in temporarily. Within two weeks the Federal Emergency Management Agency came through with $2,900 to cover the first few months’ rent; the payments continued through fall of this year.

The couple also moved swiftly to replace their vehicles. Sandy totaled Motherway’s late-’90s Nissan truck, while Schanker’s car, a used BMW 3 Series she had bought just two months before, was nowhere to be found. She searched for days before learning that the floodwaters had carried the car several blocks away, where it jumped a fence and disappeared.

Three days later, as basic services were being restored to the neighborhood, sanitation workers couldn’t figure out what was clogging a major industrial drain. As they dug through the muck, they found Schanker’s car jammed into the drain like a cork. The BMW was battered, coated in sewage. “I loved that car,” she says.

Fortunately, their auto insurer processed their claims quickly. Motherway used the $7,000 he received for a down payment on a new Buick Enclave, financing the remaining $24,000. Meanwhile, Geico paid Schanker enough to recoup most of the $13,000 she’d put down on the runaway Beemer, which she used to buy another used BMW, and upgraded to a 5 Series. She relied on 0% financing offered by her employer to Sandy victims for the other $30,000.

“The car is one of the nicest things I’ve ever owned,” she says, but “if I’d known where we’d be a year later, I wouldn’t have gotten it.”

Sorting out claims for the house proved tougher, in part because the couple had to deal with two insurers: State Farm, their homeowners carrier, for damage caused by wind, and Travelers, their flood-insurance provider, for problems caused by water.

From the beginning, they knew not to expect much from State Farm because most of the destruction was due to water. Still, Motherway and Schanker were able to demonstrate that missing roof shingles and the blown-down fence resulted from the storm’s fierce winds. After meeting a $1,000 deductible, their first State Farm check was a mere $855. Motherway asked the insurer to resend the adjuster and ultimately was awarded nearly $11,000 more.

The flood-insurance process has been more complicated. The couple knew to limit their cleanup work until a claims adjuster could review the damage. They expected to have to wait a long time, given the surge of claims. Clumps of mold started making them nervous, but they were relieved to get a call from Travelers two weeks after the storm saying that an adjuster from a Mobile firm it had contracted with to help handle claims would be coming to visit. Someone by a different name showed up from the Mobile company, but they didn’t think anything of it. The adjuster toured the house, took careful notes, and drew diagrams; Motherway and Schanker documented his work on videotape.

Relieved to be able to start clearing away the soggy debris, the couple got to work almost immediately after the adjuster left. “It was a Sunday,” Motherway recalls. “We were standing there, overwhelmed, and I said, ‘What do we do now?’ Jenn jokingly picked up a sledgehammer.” A church group happened to be walking by and asked if they could help. “They helped us rip up almost half the house.”

Then things got weird. About two weeks later, Motherway got a call from a man claiming he was their adjuster. “I thought I was being scammed,” Motherway says. A call to Travelers led him to the Mobile firm, Southeast Catastrophe Consulting, which told him the first adjuster had not been authorized to visit his home. Southeast’s president, Robert Evans, told MONEY that the adjuster had been fired and all his cases reassigned. A Travelers spokesman confirmed the story.

Back to square one. The new adjuster came but had a difficult time evaluating the full extent of the damage because by that time the house had been cleared and gutted. Their first payment from the flood insurer: $69,000. Motherway pushed to have an engineer analyze the foundation after receiving a code violation notice that it was cracked, netting him a couple of thousand more.

Another check from Travelers for nearly $13,000 arrived in September. The couple’s experience is similar to that of many Sandy families, who have complained about the protracted claims process and settlement checks that come in dribs and drabs.

The $95,000 or so in payouts so far from Motherway’s homeowners and flood policies isn’t enough to cover the actual cost of repairs. To comply with more stringent building codes put in place after Sandy, the couple also need to install support piles to raise the house 10 feet.

Estimates that Motherway has compiled — mostly from acquaintances in the construction business — put the total project price tag at around $260,000. The current market value of the house: $204,000, down from $303,000 before Sandy. Meanwhile, Motherway still owes nearly $275,000.

Despite the high cost, Motherway and Schanker feel that rebuilding is their only viable option. No one would buy the property in its current condition, Schanker points out.

Without the funds to proceed with repairs, though, the couple are unsure of their next move. Initially they could afford to wait as they worked on getting their insurance settlement bumped up. After all, FEMA was covering their rent, and Wells Fargo, their mortgage holder, had granted them a six-month suspension on payments, as the bank did for all customers displaced by Sandy.

When the grace period ended in April and the bank started pressing for payment, Motherway and Schanker panicked and didn’t respond. Neighbors and friends reassured them that the bank would eventually just tack the amount past due onto the back end of the loan.

Bad call. The notices from Wells Fargo demanding that Motherway, the sole title holder, resume payments of $2,148 a month, plus send the amount past due — by then, about $13,000 — became more threatening. The latest communication used the F-word: foreclosure. Motherway’s initial unresponsiveness hasn’t helped his cause.

“We are trying to be flexible. We have offered extensions of the moratorium period,” said Marie Day Hayes, a senior vice president for Wells Fargo, when asked about Motherway’s loan. “If the customer is in that situation, they need to have a conversation with us.”

The couple have since made tentative attempts to resolve the issue. After getting bounced among different bank representatives, Motherway was finally connected to a disaster-relief specialist in September, but says he was told he was not a candidate for loan modification because his house is not habitable.

Instead the bank offered to reduce his payments for three months to $1,600 a month; after that, he’d have to send in the past due amount and resume regular mortgage payments. Motherway sent a check for $1,600 for October, then stopped when he realized he couldn’t sustain the payments.

Even without the mortgage mess, Motherway and Schanker would be in trouble. Since most of their furniture was destroyed in the storm, they bought new pieces for the apartment, putting the purchases on credit cards. Between that and the loans for their new cars, they’re shelling out about $2,500 a month.

After repairing the boiler and electrical panel, they’re also paying utility bills for both the apartment and the house — they need lights in the house so they can work on it and heat so the pipes don’t freeze. Meanwhile, premiums for their homeowners policy have doubled. State Farm has been pulling out of coastal New York because of the higher risk of severe weather and did not renew their policy. Unable to find alternative coverage, Wells Fargo “force placed” them with an expensive specialty carrier.

After reviewing their finances, certified financial planners Mark Sallinger and Michael Terry of MTP Advisors in Maspeth, N.Y., initially believed the challenges the two face are so severe that Motherway might need to declare bankruptcy.

“Even if you take the mortgage out of the equation, you’re barely keeping your heads above water,” Sallinger told them in an early meeting. Bankruptcy, he said, would free the couple of their biggest debts and wouldn’t affect Schanker’s credit standing, since the two aren’t married and the house is in Motherway’s name only.

That suggestion did not go over well. “It feels wrong to walk away and let the whole thing defeat us,” says Schanker. “We’re not ready to give up.”

THE ADVICE

Working with Motherway and Schanker for several weeks more this fall, Sallinger, Terry, and Jeffrey Gould, a private insurance adjuster from Baltimore, re-assessed the couple’s options. The experts came up with a plan to get the family out of the quagmire.

File an amended claim — stat. Multiple go-rounds with adjusters are common with complex insurance claims, says Gould. Flood programs are particular sticklers for details, demanding exhaustive documentation. After a major storm, Gould also notes, adjusters are loaded with claims and may rush, miscoding items in estimating software or missing them altogether. Small oversights can add up quickly.

All these factors came into play with Motherway’s claims, says Gould, who was able to identify dozens of items that either were missing from the original claims or had been underestimated. For instance, there was no listing for the baseboard heating system on the first floor, which was destroyed by flooding, or for a damaged crawlspace. The original adjuster also didn’t note certain upgraded materials, such as higher-quality wood subflooring.

After getting detailed estimates for these items, Gould prepared a new 14-page claim for $112,000, or nearly $30,000 more than they’ve gotten from the flood insurer so far. “These are conservative estimates I’m confident they’ll get,” says Gould. The higher amount would bring the official damage total to more than 50% of the home’s assessed value, qualifying Motherway for up to $30,000 in FEMA grants to help offset the cost of bringing the house up to code.

Get multiple bids for rebuilding. Even if the amended claim is successful, Motherway and Schanker will still not have enough to rebuild, if the estimates they’ve gotten are accurate. Gould urges the couple to get at least two bids from general contractors experienced with flood damage, rather than relying on piecemeal estimates from individual plumbers, electricians, and other workers. The adviser believes repairs to the 750-square-foot first floor, plus the support piles, should run far less than the $260,000 Motherway initially quoted.

The couple can also help close the gap by applying for a low-interest loan from the Small Business Administration, which provides disaster relief to homeowners as well as businesses. The couple already received a $30,000 SBA loan to help replace their appliances and furniture since they did not have contents coverage. Their amended insurance claim would qualify them for up to $40,000 more.

Clean up the mortgage mess. Sallinger says it’s imperative for them to negotiate a new deal with Wells Fargo. Ideally they’d be allowed to make reduced payments of $1,200 a month until they’re back in the house, then tack on the past due amount to the principal. At the least, the couple could accept the bank’s offer to pay $1,600 a month for three months, then try to negotiate an extension until they’ve done enough work on the house to qualify for a loan modification.

Wells Fargo has indicated to MONEY the bank is willing to work with Motherway, but he’ll need to keep the disaster specialist he’s working with apprised of his progress in rebuilding the house and stay current with the reduced payments.

Erase the red ink. To boost their income, Sallinger suggests Schanker could temporarily reduce her 401(k) contributions from 13% to 6% (she’d still qualify for a full company match). Motherway, who helps support two older daughters, could also bump up his exemptions from two to six without triggering a tax bill, says his accountant, John Bernet of Port Jefferson Station, N.Y., who was brought in for consultation. Total extra income: $600 a month.

In addition, Sallinger proposes that Motherway and Schanker use part of the proceeds from their low-interest SBA loan (monthly payment: $125) to erase their high-interest credit card debt (monthly payment: about $1,700). Replacing Schanker’s BMW with a cheaper, used vehicle could drop her car payments by more than half. Along with smaller cuts in discretionary expenses such as meals out, these steps should bring the couple’s expenses in line with their pay.

Get better, cheaper protection. Motherway might be able to lower his homeowners premiums by buying “builder’s risk” insurance, which provides coverage during renovations, from a specialty carrier. He might also get a lower-priced policy through the state-backed insurer of last resort, New York Property Insurance Underwriting Association. Once the repairs to the house are done, Motherway can reapply for traditional insurance.

One extra insurance expense the couple should take on, Terry says: life and disability protection. Around $84 a month will buy a $500,000 term policy for each of them, according to Accuquote. Terry also recommends disability insurance for Motherway, the higher earner; roughly $165 a month buys him $5,000 in monthly income.

More hopeful after hearing the recommendations, Motherway and Schanker say they’ll do whatever it takes. They’re keenly aware their situation could have been a lot worse: Two women drowned the next street over, as did the man who lived on the corner. Nugent Avenue itself remains lifeless; many of their neighbors haven’t been able to go home yet either.

Reflecting back over the past year, the couple are also quick to point out that not all of it has been bad. “So many people have been generous and kind to us,” says Schanker. Still, they’re eager to move on and to finally be able to put Hurricane Sandy behind them. Says Motherway: “You just hope it’s the kind of storm that happens only once every 100 years.”

MONEY homeowners insurance

Homeowners Insurance: Covered? Don’t Be So Sure

Your homeowners insurance policy may not protect you as much as you think, as insurers have hiked deductibles and scaled back on coverage. Here's how to make sure you have the home protection you need.

Bought or renewed a homeowners insurance policy lately?

You’ve no doubt noticed that premiums have gotten pretty pricey. Rates have climbed 69% over the past decade to an average of $1,000 a year.

What you may not realize is that you could be facing another vast expense. Insurers have also been quietly hiking deductibles, scaling back basic coverage, and adding new restrictions.

Coverage now varies widely among carriers, but that’s not always clear when you’re shopping around, says Daniel Schwarcz, a University of Minnesota professor who has studied hundreds of policies.

“Consumers shop almost entirely on price and reputation,” notes Schwarcz, and exclusion clauses are often written in legalese and buried in a policy that runs dozens of pages. Moreover, comparison shopping is difficult, since consumers rarely get a copy of the policy before they buy.

When disaster strikes, you could get hit with tens of thousands of dollars in costs for damages that you thought were covered.

The reasons for the changes are complex. Homeowners is one of the least profitable types of insurance; on average, over the past 10 years firms have lost money on these policies, according to the National Association of Insurance Commissioners (NAIC).

Insurers say that’s largely because of unpredictable weather. There were 953 “weather events” insurers considered catastrophes in the U.S. in the past five years, compared with 602 in the previous five, according to industry data.

In 2011 the amount insurers paid out for the average claim was nearly double the amount in 2002, according to the Insurance Research Council. More trouble: Firms make money in part by investing your premiums; that means at times they can recoup higher claims costs with market returns. The financial crisis and low interest rates haven’t provided much relief there.

To cope with squeezed profits — and so they could beef up their reserves to pay for freak massive storms — insurers stopped writing new policies in some disaster-prone areas in recent years and pushed for higher premiums. Regulators pushed back on the prices. “If we allowed the rate increases companies wanted, nobody would be able to afford insurance,” says Kevin McCarty, Florida’s insurance commissioner and a past NAIC president.

So insurers made up the gap by cutting coverage, leaving homeowners in a precarious position, say consumer advocates. “It’s easy to think you’re covered when you’re not,” says Amy Bach, executive director of advocacy group United Policyholders, which has lobbied the states to reject stripped-down policies and make coverage more transparent.

For the foreseeable future, however, the onus is on you to make sure your biggest investment is fully protected. In the following you’ll find out where your coverage most likely falls short and learn the best way to plug those holes.

WATER: Coverage is thinner than you think.

A shower pipe bursts behind the bathroom wall — you’re covered, right? Maybe not.

In the past decade insurers have scaled back significantly on covering that cracked pipe, leaky toilet, and clogged drain.

Water coverage began getting less generous after a jury in a 2001 Texas lawsuit involving toxic mold awarded a family more than $30 million (later slashed). Toxic mold grows in the damp, and nowadays payments for mold claims are all over the map: 60% of the insurers that Schwarcz studied in a recent analysis of 60 policies in six states capped mold coverage at $2,500 to $50,000; another third paid nothing.

The cutbacks now extend to broader water damage. In Texas, for example, the insurance department found that nine of 10 policies in 2010 were less generous than the state-approved “prescribed” policy (a benchmark created by regulators), nearly double the number in 2002. Your policy probably used to exclude claims from water leaks that occurred over a period of weeks, months, or years. Now it probably specifies that the leak can’t have lasted longer than 14 days — even if the source was hidden, say, behind a wall or under a foundation.

Those limitations snagged Fredi Cohen, who is suing a Florida insurer over its refusal to pay for a burst shower pipe in her late mother’s condo that caused an estimated $35,000 in damage in June 2011. Three weeks later an engineering firm hired by the insurer found that the plumbing had been leaking for more than 14 days. By that time, Cohen says, the damage was so old it was impossible for her to dispute the firm’s findings. “I was astonished,” Cohen says.

Solution

Up your protection. Get a rider that covers sewer and drain backups — generally excluded from policies — especially if you have a sump pump. Expect to pay 10% to 20% of your premium for such a package. On a Seattle home insured with Safeco for $400,000, $20,000 in such coverage costs $146 a year, according to NRG Insurance.

Be vigilant about prevention. Place wireless water alarms ($25 for three) under your sinks and behind the water heater and washer — they’ll go off at the smallest leak. Eye your water bill for unusual activity, which could alert you to a larger problem (say, a leaky hose in the yard).

REPAIR: Real-world costs may exceed your check.

Insurers used to provide a guarantee that they’d pay to fix your home no matter what. But after so many widespread catastrophes, they’ve pared back.

One reason is the “demand surge.” After a big storm, contractors and building supplies are in unusually short supply. The temporary shortage drives up prices. Today you’ll rarely find guarantees, and certainly not in disaster-prone states (instead, your policy will simply say it covers “replacement costs”).

If you want better protection, you need to buy optional extra insurance, or “extended” replacement, which kicks in to deal with unforeseen costs. Also, insurers have added lots of caps and limitations. For example, many eliminated coverage for screened-in pool enclosures and patios after Hurricane Wilma in 2005 tripled the price for those items. Allstate’s new House & Home policy says the older the roof, the less Allstate pays toward replacing it.

Even if your replacement benefit will pay for your losses, you may be subject to picky rules for filing claims. Your insurer first will hand you a check for what it calculates is the actual cash value of what you’ve lost, accounting for depreciation. Then, once you actually replace the items or rebuild, insurers pay the extra cost. Specific requirements vary among carriers. Some say only that homeowners must notify their insurers of their intent to replace within six months. Others mandate that the work must be completed in six months. Policies also differ by state; some require insurers to offer more time, such as Maryland (two years) and California (one year).

Paula and Michael Sher were tripped up by this kind of fine print after a fire severely damaged their Long Island home in July 2008. Between getting permits and winter storm delays, they say rebuilding took more than two years, but their Allstate policy said they had to have been finished within six months to claim $97,000 in extra replacement-cost benefits. The Shers sued, saying the requirement is unreasonable. An Allstate executive says the company has found that 180 days is “more than enough time” in the majority of cases. After discussions with regulators on multiple complaints, however, Allstate changed its New York policies, so it now allows two years for rebuilding (the Shers’ case is pending).

Solution

Get extended replacement coverage. A typical rider costs about 10% of your premium and will tack an extra 25% onto your replacement benefit, enough to cover most situations. Also buy replacement-cost coverage for your personal property (about 10% of the personal-property premium); basic policies typically reimburse based on the depreciated value.

Understand what you’re getting. Few homeowners take the time to read their policy and, even if they do, may not realize how one phrase — sometimes one word — can mean thousands of dollars come claim time.

Gregory and Moira Taylor, for example, thought they were covered when a heavy 2010 storm caused the carport at their Maryland home to collapse. Their State Farm policy included the “sudden, entire collapse of a building”; plus, their agent told them it was covered, according to state insurance department documents. State Farm, however, denied the $1,706 claim, saying a carport does not meet the criteria for a building (which must have a roof and at least three walls). The Maryland insurance department agreed with State Farm, but the assistant attorney general is appealing the decision to the state supreme court.

Get it in writing. Make sure to document your steps in rebuilding, such as interviewing contractors and applying for permits.

Ask for an extension. Think you won’t meet the time limit? Call your insurer and request a reprieve. If you’re denied, file a complaint with your state insurance department and ask it to intervene on your behalf.

Make a thorough home inventory. Document every inch of your home and you lower the chances you’ll have to fight over coverage for your personal property. Use the free app from knowyourstuff.org, or hire a home inventory professional (find one through nahip.com) for $300 to $600.

WIND: Insurers make use of lots of loopholes.

Homeowners’ deductibles typically run $500 to $2,500 — unless damage is due to a windstorm.

Special wind deductibles were first introduced after Hurricane Andrew in 1992, and they’ve now been extended to 19 states plus the District of Columbia — and in some cases to tornadoes and hailstorms.

Instead of a set amount, you can opt for a percentage of your property coverage, typically 2% to 5%. Put another way, for a home insured for $400,000 with a 5% deductible, you’d be out $20,000 before your insurer forks over a dime.

Solution

Stay with a 2% deductible. Upping to 5% will offer only minimal savings on premiums, says agent Billy Wagner of Brightway Insurance in Florida.

Know where you’ll get the cash. You need enough cash in reserve to cover the largest deductible you will incur if a windstorm hits. If it would take a while to save that much cash, open a home-equity line of credit to draw on when you need it, says Dallas financial planner Michael Anderson.

REBUILD: Your policy may not pay for an up-to-date dwelling.

Insurance is designed to rebuild the home you have. But especially with older homes, newer, tougher building codes can make an exact replacement impossible unless you pay more than the cost of your original home. Historically a typical policy allotted 10% of your dwelling coverage toward the extra expenses of satisfying modern building codes.

These days policies vary widely, Schwarcz has found. In his analysis, 20 didn’t cover the extra costs at all unless you had added a rider on your policy; another eight offered coverage that wouldn’t cover the full expense.

Solution

Opt for extra coverage for an older home. If your home is less than 10 years old, 10% of dwelling coverage for code updates probably suffices — verify that your policy includes it.

For older homes, and in disaster-prone areas where codes change more rapidly, upgrade your policy to include 20% for “ordinance and law.” Costs depend on location, says Kurt Thoennessen of Ericson Insurance; for a home insured for $400,000, going from 10% to 20% may cost $25 a year in Connecticut but $200 in Florida. The cost also varies widely by carrier; some price it high because they would prefer not to insure older homes, he says.

To help pay for this, you may want to increase your basic deductible. Going from a $500 to a $1,000 deductible will cut your homeowners premium at least 10% (it’s not worth making a bunch of small claims anyway; you risk your carrier dropping your coverage).

FLOOD: Coastal dwellers are taking a big risk.

Private insurers long ago stopped covering flood damage, so homeowners have to purchase it through the National Flood Insurance Program.

There are two problems with that. One, many people outside high-risk zones don’t have it — including some who probably should. Two, the federal program maxes out coverage at $250,000 for the dwelling and $100,000 for your personal property, which could easily fall short of the amount needed to rebuild your home.

Flood insurance also has its own restrictions. Among them: It won’t replace trees, decks, and pools, or help you fix your finished basement. It won’t pay for personal property or for living expenses you incur while your home is uninhabitable. And as homeowners affected by storms Irene and Sandy in the Northeast have discovered, some claims are being denied if even an inch of the first floor is below ground.

Getting stuck with only $250,000 in coverage could happen more often than you imagine. When damage results from both wind and flooding — as in most big storms — insurers want proof that they, and not flood insurance, should pay. After Hurricane Katrina reduced thousands of homes to mere slabs, insurers simply denied claims because there was no proof the damage wasn’t caused by flood (courts overturned most of those denials).

Solution

Pony up for flood coverage if you live near any body of water. Even melted snow can cause a flood, says the Insurance Information Institute. Rates depend on your home’s age and location.

Live in a high-risk zone? Though expensive, you may want “excess” flood insurance, sold by only a few insurers. Another $250,000 in dwelling coverage and $100,000 in contents might run about $1,000, says Wagner.

Finally, be realistic. Before deciding to transform your basement into the man cave of your dreams, understand that you’ll have to foot the bill for flood damage. Avoid keeping valuable belongings there if you live near the water, or at least plan to remove them before a storm, says the III’s Jeanne Salvatore.

Looking to buy a coastal home? Keep in mind that by drastically cutting back coverage or refusing to write policies at all in some highly storm-prone areas, insurers have effectively declared these places too risky to inhabit. Says Salvatore: “Insurance costs are something people really need to think about to begin with when they buy a house.”

HOW TO SHOP FOR A POLICY

The myriad ways insurers now offer homeowners insurance makes comparison shopping challenging—but critical. Use the four tips below to help you get the best possible deal.

Get five quotes. Agents may be tempted to quote cheaper policies in their eagerness to land the sale. So talk to three, including at least one who can give you multiple quotes. (Find one at iiaba.net; click on Contact Us.)

Compare. A few state insurance departments, such as Nevada’s, post sample policies online; Texas has a policy comparison tool at opic.state.tx.us (click on Compare Policies). Your state’s policies will be similar.

Ask the right questions. Your agent should give you a list of all the riders each carrier provides; bundling riders may earn you a discount. Ask how replacement-cost coverage is handled.

Request a sample policy. Many agents will provide them in advance, even though they don’t have to. And once you buy, make sure you read the policy. You can always cancel and get a refund.

An earlier version of the story incorrectly stated that Hurricane Wilma occurred in 2006. The storm actually took place in 2005.

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