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Can I just reduce the amount I have and rely on getting a FEMA check if there is a disaster?

Updated on August 2, 2016

No, you should not reduce the amount of your homeowner’s insurance and count on getting a FEMA check for a number of reasons. The biggest reason not to do that is it is very unlikely that if your house is damaged, it will be damaged because of a disaster. FEMA may provide you money if your house is burned in a huge wildfire or collapses because of a landslide, but the odds are much better that your home will be damaged in a “normal” fire, or that your home will flood because the pipes burst while you are out of town. FEMA money would not be available in either of those situations.

Also, even if your home were damaged in a disaster under which you could qualify for FEMA funds, it’s very unlikely that you will receive an amount that is even close to what you will need to repair or rebuild your home. Recently, the average grant from FEMA was calculated at $5,000. The maximum grant available under FEMA is $32,000. Although $32,000 may be a lot of money, in most cases it’s not much when you must use it to replace all of your possessions or rebuild your home.

Instead of relying on FEMA, you should carefully examine your insurance policy and make sure that you have a sufficient amount of insurance to cover you in the event you suffer a loss. Unfortunately, after a tragedy many homeowners find out that they are underinsured, or that the type of damage they suffered falls under an exclusion to their policy. To prevent this from happening to you, you should review your policy and make sure that the types of losses covered and the amount of coverage available is appropriate for your situation.

Typically, homeowners’ insurance policies cover both hazard insurance and liability insurance. Hazard insurance covers physical damage involving your property and possessions, and liability insurance covers injuries to people on your property or caused by members of your household. Hazard insurance typically covers damage to your property and its contents caused by fire and smoke, wind, lightning, hail, explosions, riots, vandalism, volcanoes, theft, water damage, and other similar events. However, that does not mean that a hazard insurance policy covers everything. It’s very common for hazard insurance to exclude damage caused by flooding and earthquakes, both of which can be important to people in the Oakland area.

Typically, insurance companies do not want to include coverage for high-expense, high-risk types of damage. If you are worried about coverage for any exclusions, you may either be able to add that coverage onto your policy, or buy coverage from another source. For example, it may be smart for a homeowner in the San Francisco area to buy an earthquake policy if their regular policy does not cover earthquake damage.

Once you do have an incident with your home, you may assume that your insurance company will pay for your home to be rebuilt or restored to exactly what it was before. However, that depends on what your policy says. The best type of policy is guaranteed replacement coverage, which will guarantee payment of 100 percent of your repair or rebuilding costs, without limits. Those policies can be difficult to find, however. Instead, you likely have replacement cost coverage, which will give you a set dollar figure, which could be far less than what is needed to rebuild or restore your home. Policies with actual cash value coverage should be avoided.

You should also check your coverage for living expenses and replacement costs for personal possessions. The policy should provide you with compensation for your living expenses while your home is being rebuilt, as well as with money for your personal possessions.

If your homeowner’s insurance is too expensive, it’s critical that you do not get rid of it. Instead, shop around. You would be shocked how much the prices can vary among companies. Talk to an insurance agent about what can be done to reduce your premium.

If you are in the Oakland-Walnut Creek area, and you have had a disaster and you have a dispute with your homeowner’s insurance company, call Robert I. Levy, Attorney at Law, at 510-465-0025. He can help answer your real estate questions and will provide you with a free consultation. You may be able to file a claim against your insurance company for more compensation. Call to learn more.

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