Is your home insurance ready for the next disaster?

Facundo Abraham
Analyst, Client Needs 

Whether it’s hurricanes, wildfires, tornadoes or polar vortexes, every year, natural disasters cause billions of dollars in damages across the country. In 2024, more than two dozen climate events with at least $1 billion in damages occurred. These included, for example, Hurricane Helene, which damaged over 70,000 houses in North Carolina alone.¹ In fact, about one in 20 homeowners files a property damage claim each year.²

While there’s not much you can do to prevent natural disasters, having the right home insurance can help better position you to rebuild your life after one happens. While Edward Jones doesn’t offer homeowners insurance, having the right coverage can help protect you from a large financial loss that could derail your financial goals.

Avoid these common home insurance pitfalls

There are several mistakes you can make when setting up your home insurance policy. Not being aware of these four common pitfalls can be costly. 

1. Only being protected against a limited type of events: Your insurance will only pay for damages caused by a covered event. You can generally choose how comprehensive you want your policy to be. Because you don't know what will hit you, we recommend having a policy that’s as broad as possible, known as an “open policy.”
2. Not filling coverage gaps: Even with the most comprehensive coverage, standard policies won’t cover every event. Some common events, such as flooding, sewer backups and earthquakes, are never covered. If these uncovered events are relevant for you, you might be able to get coverage by purchasing add-ons to your policy (known as endorsements) or supplementary coverage (like flood insurance from FEMA’s National Flood Insurance Program or a private insurer).
3. Insuring your home for actual cash value: If you make a claim, there are generally two ways your insurance will determine how much to pay: It can reimburse you for actual cash value (the value of the property lost reduced by wear and tear) or replacement cost (the cost of buying a brand-new item). Between the two, we recommend replacement cost because, even though it’s more expensive, your payout with actual cash value may not be enough to replace everything you’ve lost.
4. Having inadequate personal property coverage: Pay attention to coverage for your personal property, since the default coverage tends to be more limited than that for your house.
   • Covered events: It’s common for your belongings to be covered for fewer events than your house.
   • Reimbursement option: While damage to your house is usually covered at replacement cost, personal property tends to be covered by the more limited actual cash value.
   • Coverage for valuable items: Standard policies usually limit coverage for high-value items, such as artwork, jewelry or silverware. For example, you might have personal property coverage for $100,000, but the policy might set a special limit of only $1,000 for jewelry.

You can generally enhance your personal property coverage to expand the events covered, change the reimbursement method and increase coverage for valuables.

What if you can’t afford changes to your policy? 

Upgrading your home insurance through add-ons and supplementary insurance can be expensive, particularly in the current environment of rising insurance premiums. So, what should you do if it looks like you can’t afford this extra coverage? 

Generally, compromising on coverage to keep your premiums low isn’t recommended. Natural disasters can be expensive, and being underinsured is a big risk to take for saving on premiums. Instead, look into options to reduce the premiums paid. 

• Ask whether you qualify for discounts. For example, insurance companies might offer discounts for setting up automatic payments or going paperless.
• Bundle your policies. You might be able to lower premiums if you buy multiple policies (e.g., home and auto) from the same company.
• Increase your deductibles. With higher deductibles, you’ll pay more out of pocket before your insurance kicks in, which can lower your premiums. But be aware that you’ll be on the hook for more money if an event occurs. Raising your deductibles might be worth considering if you have enough in your emergency fund to cover the higher amounts. Your financial advisor can help review your emergency savings and determine if you can afford higher deductibles.
• Shop around for lower rates. Getting quotes from other companies might help you find a more affordable policy. When comparing policies, make sure the coverage is the same, especially if one costs much less than the other. 

Even after taking these steps, insurance might remain prohibitively expensive, particularly if you live in a high-risk area. In some cases, you might not even be able to insure against certain risks. If that’s the case, reach out to an insurance broker to explore alternatives. These could include filling coverage gaps by using multiple insurers or your state’s FAIR plan or making home improvements that could lower your premiums.³ Keep in mind that even then, you still might not get all the coverage you want and you might have to self-insure for part of the risks.

Seek help to stay on track

Home insurance policies can be puzzling, but you don’t have to review them alone. An insurance agent or broker can help review your current policy, identify gaps and compare options. Then, your Edward Jones financial advisor can help incorporate insurance premiums into your financial strategy as well as help you review other protection strategies to help you stay on track toward meeting your long-term goals.