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Home Insurance

Rebuilding Your Home and Finances After Disaster Strikes

Mopping up—and drying out—after the hurricanes was only the first challenge. Now the victims have to struggle through recovery.

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Hurricane Harvey, which pummeled Texas in late august, and Hurricane Irma, which blew through the Caribbean and Florida two weeks later, both took a heavy toll. Harvey caused more than 80 deaths and nearly $100 billion in losses. Irma claimed more than 60 victims and caused more than $50 billion in losses. But in some ways Florida residents got off easier because most of the property damage there was caused by wind and was covered by insurance. In Houston and nearby areas hit by Harvey, most of the damage was caused by flooding from up to 50 inches of rain that poured down on the region for five days—and only about 20% of the flooded homes were covered by flood insurance. (In Puerto Rico, huge numbers of Hurricane Maria victims had neither homeowners nor flood insurance.)

SEE ALSO: 10 Things to Know About Insurance Claims

Damage caused by wind, wind-driven rain and water that comes into your home through the roof, windows, doors or holes in the walls is usually covered by homeowners insurance. But damage from flooding or water that rises from the bottom up—from the overflow of a body of water, for example, or a storm surge—isn't covered. For that, you need a separate flood insurance policy.

Millions of homeowners around the country live in neighborhoods that are vulnerable to flooding from hurricanes, tropical storms and heavy downpours. And as thousands of Houston residents have learned, if you don't have flood insurance, you may not be covered for your losses.

In many Houston neighborhoods, the flood insurance haves and have-nots live (or lived) next door to one another. We visited one quiet cul-de-sac in Conroe, Texas, where Mike and Nichole Bartlow had purchased a home on August 1; their flood insurance policy kicked in on August 16. Their next-door neighbors, Douglas Gana and Diane Gallo, bought their house in 2013—before the area's flood maps were redrawn in 2014 and put their house just barely in the flood zone. They didn't buy a policy because they didn't think they were at risk.

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On August 28, the day after the Bartlows and their two daughters evacuated to Mike's parents' home, he returned to his house to retrieve some valuables. Water had just soaked into the yard. But by the next day, "our yard was a big lake," he says, and the water inside his home came up to his waist. Most of the Bartlows' appliances were destroyed or contaminated with bacteria-laden floodwaters, although the toilet still worked and one TV was mounted high enough to survive unscathed. When the water receded, the Bartlows had to act quickly to rip out the bottom 4 feet of drywall and insulation in their single-story home. When they were finished, only the wooden beams remained.

Before they received an advance of $50,000 from the company that underwrote their flood insurance policy, the Bartlows paid for initial repairs using their emergency fund and a one-time bonus from Mike's employer that equaled two weeks' pay. Their mortgage lender allowed them to defer three mortgage payments without harming their credit, which helped free up cash for initial fixes.

The Bartlows expect to move back in by the end of the year. Their insurer assured them they would get enough money to redo their home, as long as they provided proof of costs. "This gave us the confidence to make a down payment to the general contractor without knowing what we will ultimately get," says Mike.

Next door, Douglas Gana, who owns a construction business, is overseeing the repairs himself. He estimates that he and Diane will have to spend at least $90,000, which they'll be able to cover with their savings. When the repairs are finished, they plan to rent out their home and move to an area that's less likely to flood in the future.

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Making an insurance claim

After a hurricane, it's important to contact your insurance agent or company right away—even if you can't gain access to your home yet—to start the claims process and get in line to meet with an adjuster. Depending on your coverage, you could end up meeting with several adjusters—one for your homeowners insurance, another for flood coverage and maybe a third if you had to buy a separate windstorm policy (see the box on page 31).

In a disaster the size of Harvey or Irma, adjusters are not only spread thin but may have trouble even getting to homes because of flooding and downed trees. When cell-phone and internet service became unavailable after Hurricane Harvey, insurers set up mobile claims units to meet with homeowners throughout the damaged areas of Texas.

Some insurers even used drones to do an initial inspection of homes that were inaccessible. For example, one homeowner called Chubb and said he knew there was 1 to 4 feet of water in his area, but he couldn't get to his house to verify the damage. "Within a few days, we were able to fly a drone in there, and using the camera we could see the height of the water on the door and how high the water was in the house," says Tim Blake, an adjuster who is vice president and claims leader for Chubb. The adjuster and homeowner couldn't meet at the property until September 16, but because the legwork was done in advance, Chubb was able to pay the claim just two days later.

When the Bartlows were able to get back to their home, they received conflicting advice about whether they needed to hang on to their belongings long enough for the adjuster to inspect them or whether photos would suffice. Here's what insurance experts recommend: Walk through the house with your smartphone and take a video of each room with a running commentary about the damages before you do anything to the house. Open closets and drawers to show the damage to your possessions, too.

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Next, take steps to prevent the situation from getting worse. Homeowners should make temporary repairs, such as covering broken windows or holes in the roof, to prevent further damage, says Jerry Hagins, of the Texas Department of Insurance. "But don't make permanent repairs until an adjuster has seen the damage and authorized them," he says. Keep receipts for the temporary repairs, which may be reimbursed by your insurer. Ask your insurer if you can dispose of any destroyed possessions before the adjuster arrives; the requirements can vary.

While you wait for the adjuster, start to gather receipts for valuable items, either from any salvaged files or online. "We don't expect a detailed spreadsheet," Blake says. He suggests asking relatives for pictures of family gatherings at your home in case you see items in the background that you forgot about.

Try to be at the house when the adjuster arrives; it can help if your contractor comes, too. Take careful notes of your meetings with each adjuster. You'll need them if you have any claims problems later, says Robert Hunter, director of insurance for the Consumer Federation of America and a former Texas commissioner of insurance. He recommends documenting all contacts with your insurance companies, starting as soon as you file a claim.

When claims are paid. Depending on the type of insurance you have, you could ultimately get three types of payouts: one for living expenses, one for building damage and one for possessions. The first check you'll receive is usually for living expenses, assuming that's covered by your policy. If the damage is extensive, the insurer may give you an advance payment to cover the cost of a hotel or rental while you're out of your house. As you submit receipts, additional payouts should follow. Some insurers provide debit cards for these expenses, and they may continue to cover such costs for a given time period while you're out of your house—often up to a year, or until the expenses reach 20% of your total dwelling limit.

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In the wake of Harvey, the National Flood Insurance Program (NFIP) made advance payments of $5,000 to $20,000, sometimes even before insurance adjusters arrived, with higher payments to people who provided records of a significant loss. Those advance payments will be subtracted from the final payout.

NFIP policies don't cover living expenses while your home is being repaired. There are other limitations as well: The policies cover possessions at their depreciated value rather than their replacement value, and they provide limited coverage for finishing and property in a basement. (For more details, search for the "Summary of Coverage" at www.fema.gov.)

After the adjuster submits the report assessing the extent of the damage, you'll eventually get a payout for the damage to the building (minus any advance payments), based on local building-cost estimates. Those costs may surge after a storm, but not all insurers take that spike into consideration when setting the price.

You'll usually get a separate payout for personal property. "That's the most difficult part to wrap up with the claim because you have to tell the adjuster what was lost," says Mark Hanna, spokesman for the Insurance Council of Texas, an association of insurers. Depending on your coverage, the insurer may pay you to replace the items with new ones, or the payout may be for the depreciated value of the items based on their age and condition.

The Bartlows kept good records of their possessions but ran into some snags. A desk drawer containing receipts for big purchases floated away in the flood. Nichole ended up hunting down old receipts online and by calling Apple, Best Buy and other companies she found on credit card statements. In the future, the Bartlows plan to photograph receipts and serial numbers for every major purchase and save them in the cloud—which may be the only safe place in a flood. They will also keep a spreadsheet recording the date of purchase and cost.

It takes longer for insurers to pay claims after a major disaster because everyone is stretched so thin. After Harvey, people with smaller claims weren't expected to know whether they would have claims problems until mid October, says Hunter. Those with larger claims can expect longer waits.

If your insurer offers much less than you expected or denies your claim, ask why. If the type of damage was excluded from coverage (for example, it was clearly caused by flooding but you didn't have flood coverage), there may be little you can do. But if the insurer seems to be lowballing a covered claim payout or dragging its feet, complain to a manager in the insurer's customer relations department, says Hunter.

If that doesn't help, go to your state insurance department (see www.naic.org/map for contact information). The insurance department can contact the insurer with questions, which could help move the claims process along. Many insurance departments also set up special mediation programs after disasters. The Texas Department of Insurance hasn't done so yet for Hurricane Harvey, but, says Hagins, "We'll be flagging any complaints related to Harvey as high-priority cases."

SEE ALSO: Is Your Home Fully Protected?

When insurance doesn't cover you

Many homeowners in Houston didn't think they needed flood insurance—and mortgage lenders didn't require them to buy it because the flood maps were out of date. "The majority of people in Houston were in zones that weren't expected to flood for 100 years," says Teressa Adrian, an independent insurance agent in Spring, Texas.

Cher and Ron Hayes, who live in Katy, a western suburb of Houston, were told not to bother with flood insurance when they bought their home 18 years ago. "This area is not supposed to flood," says Ron. After stanching the trickle of water seeping into their home with towels and fans on August 27, they thought they had dodged the worst. But after authorities released the Barker Reservoir, nearly 2 feet of water surged into their home and they needed to be evacuated.

Hurricane victims who don't have flood insurance may need to raise money from a variety of sources to cover the cost of repairing their homes and replacing their possessions. And even homeowners who have insurance will likely have out-of-pocket costs for living expenses (which aren't covered by the NFIP), deductibles and expenses that exceed insurance payouts, such as for tree removal. Call your mortgage lender and any other financial institutions where you have loans to find out whether you can delay payments or receive any other help.

Where to start. Register with FEMA for disaster assistance at www.disasterassistance.gov, or call 800-621-3362, or visit a FEMA disaster recovery center (www.fema.gov/drc).

You may qualify for a grant of up to $33,000 to repair damage to your home that wasn't covered by insurance. Even if you had insurance, you may qualify for some assistance, such as a small grant to help with temporary lodging. For more information about the procedure for receiving FEMA assistance, see www.fema.gov/individual-disaster-assistance.

You may find other sources of help at a FEMA disaster recovery center—from the Red Cross or Salvation Army, say. The Red Cross, for example, provided emergency-assistance grants of up to $400 for applicants in 39 counties affected by Hurricane Harvey. You can get more information from your state's emergency-management agency (see www.fema.gov/emergency-management-agencies for links).

The Hayeses applied for FEMA assistance on August 28. The inspector didn't come until September 19, but two days later, they received a deposit of $9,000 for home repairs.

Low-cost loans. After applying for FEMA aid, you'll likely be directed to apply for a disaster loan from the Small Business Administration. (Taking a loan doesn't exclude you from FEMA grant money.) You can apply online at https://disasterloan.sba.gov/ela, or you can visit a disaster recovery center. If the idea of taking on debt during a time of financial hardship seems unwise, note there are no application fees, and you can cancel the loan at any time without penalty.

After you apply, a cost estimator or "loss verifier" will call you to discuss damage and lost property, room by room. SBA lends homeowners a maximum of $200,000 to restore a primary residence, plus another $40,000 to homeowners (and renters) to repair or replace personal property. The loan term is typically 15 or 30 years, with the first payment deferred for 11 months. "We try to make the payment fit the borrower's budget," says Richard Jenkins, of the SBA's public information office. There are no fees to originate, close or prepay the loan. Interest rates are fixed at 1.75%, or 3.5% for applicants with higher incomes or significant assets. About 90% of applicants receive the lower rate, says Jenkins.

After the loan is approved, you'll receive an initial disbursement, typically $25,000, to get started on repairs. As your contractor completes work and sends you the bills, you'll receive the money to pay them. (Save receipts of any work you had done before your loan was approved to get that reimbursed, too.) The loan is flexible. You can draw down as little as you need to, or ask your case manager to raise your amount if you find the initial estimate falls short.

Carolyn Cooper (we changed her last name at her request) and her husband, three children and dog floated out of their neighborhood in Katy on the morning of August 29—and found themselves with no vehicle and no place to live. She submitted her online application for FEMA assistance and an SBA loan the next day. It took two and a half weeks to be officially approved for the SBA loan. The damage to their home was assessed at $320,000, so they were approved for the maximum loan of $240,000. They also had to purchase flood insurance.

If you go the SBA route, keep all receipts documenting your repairs because the agency audits some borrowers. Also, note that the SBA never charges for its services, including home inspections.

Tapping your retirement accounts is another option, but that should be a last resort. The IRS has temporarily relaxed rules regarding hardship withdrawals from 401(k)s and other retirement plans. For now, residents of eligible counties (and certain relatives who live elsewhere) can skip the usual red tape necessary to withdraw funds (assuming the plan allows it). You can look up eligible counties at www.fema.gov/disasters. Withdrawals will still be taxed, but Congress has waived the 10% early-withdrawal penalty for hurricane victims younger than 59½. The penalty has also been waived for withdrawals from traditional IRAs, but they're still subject to taxes. You can withdraw contributions to a Roth IRA at any time, tax- and penalty-free.

Taking a loan from your 401(k) or other employer-sponsored retirement plan is better than a withdrawal, assuming you can repay it on schedule. A 401(k) loan will likely also be quicker and easier to obtain than a disaster loan. You make monthly payments to yourself, typically at a rate of prime (recently 4.25%) plus one or two percentage points.

Carolyn and her husband considered borrowing from his 401(k), but they decided to use the SBA loan instead. Their damage was extensive enough to merit a repayment period of 30 years at a 1.75% rate.

Other sources of help. Some forms of assistance may not have to be repaid. The Greater Houston Community Foundation received more than $78 million for the Hurricane Harvey Relief Fund, which will be distributed to local nonprofits that are directly helping hurricane victims. See www.ghcf.org for a list of relief resources. Go to www.cof.org/community-foundation-locator for links to local community foundations. The United Way of Greater Houston's 211 Texas/United Way Helpline (call 2-1-1 in Texas) and After the Storm disaster resource guide (www.unitedwayhouston.org) help connect people not only with emergency relief aid but also with resources likely to be in demand for a while, such as legal, counseling and financial services. Military families may qualify for emergency disaster grants through their armed forces emergency relief organization for their branch of the service.

In mid September, Cher Hayes, who is a special education teacher in Katy, applied for two grants through the Texas Retired Teachers Foundation. She received one grant of $1,000 at the end of the month. She also received $400 from the Red Cross. Michael Wadler, his wife and his two daughters, whose home in Willow Meadows (a neighborhood in southwest Houston) was flooded, received assistance from the Jewish Federation of Greater Houston and Jewish Family Service, including cleaning and packing supplies, as well as a $1,000 grant Wadler could use toward tuition for one of his daughters.

Don't underestimate the kindness of strangers, either. Wadler's younger daughter, Maya, lost a prized makeup collection. After he called an executive of Estée Lauder and spoke with her secretary, the company sent over a box of cosmetics. When Cher and Ron Hayes shopped for new appliances at Lowe's, Cher asked about additional discounts for flood victims. The staffer at Lowe's offered her an extra 10% off.

Flooded cars may be covered

Damage to your car caused by flooding is covered by your insurance policy if you have comprehensive coverage. Many cars with flood damage are declared a total loss by the insurer because of wet electrical systems and computers. The Insurance Council of Texas estimates that about 250,000 insured vehicles were damaged by Hurricane Harvey, and about 80% of them were totaled, says the council's Mark Hanna.

If your car is declared a total loss, you'll usually get the "actual cash value" for the vehicle, which is the value of a car of the same age and condition, minus the deductible. (See 5 Signs You're Buying a Flood-Damaged Car.)

SEE ALSO: 10 States at Most Risk of Disaster