8 strategies to get the most from your homeowners insurance after a hurricane

Judith Rubin was the first to hear the odd noise coming from the basement garage as she and her husband, Justin, waited out Superstorm Sandy in their Long Beach, N.Y., home in October 2012. Justin went to investigate. “There was water a foot deep,” he said. “Then I noticed that the laundry sink was overflowing with filthy water.”

He saw water pouring in through spaces between the garage door panels and tried to dam the entry points with clothing stored in plastic bags. But like Leonardo DiCaprio in the movie “Titanic,” Justin suddenly found himself waist-deep in chilly brackish seawater until Judith, his Kate Winslet, pulled him back up the cellar stairs to safety. Both of their hearts were pounding.

“The water kept coming up,” Justin said. It eventually stopped at a height of 5 feet, 6 inches. “I’ve never been as scared.”

You no doubt watched the news coverage of Sandy’s ominous march toward the New York metropolitan region, the dramatic ocean surge that flooded coastal New Jersey, Long Island, Staten Island, and New York City, and the months of cleanup, frustration, and despair that followed. But you may not have heard much about how Sandy’s victims handled their money matters afterward.

Day-to-day expenses don’t go away after a natural disaster. Rather, they persistently prey on your mind and pocketbook. Cash flow doesn’t automatically rise to meet the challenge of sudden expenses. Instead, you must lean on insurers and family, and tap savings. A poor credit rating and maxed-out credit cards are no longer just bad ideas, they’re a straitjacket that can slow or prevent recovery.

Now is the time to prepare, as spring flooding and the hurricane season get underway. Start by learning how the Rubins dug out from their financial hole and cobbled together a respectable recovery package.

The Rubins’ simple two-and-a-half-story house is something of a fortress. Built in 1949 of 6-inch-thick, steel-reinforced concrete, rather than wood frame, it qualified for a masonry home-insurance discount. The Atlantic Ocean, 14 blocks south, and the calmer Reynolds Channel, which separates their town from the rest of Long Island, were unlikely to move the house anywhere.

But the ground the house is built on is only 8 feet above sea level. And when Sandy pinwheeled into New Jersey, a 17.5-foot storm tide in Long Beach destroyed everything in the basement and garage, down to the wood studs in the walls and including the electrical system, the furnace, appliances, furniture, and storage items. The damage added up to $80,000.

“The entire event was a monumental emotional drain,” Justin, 71 years old, said. “Seeing our home uninhabitable, realizing how much time, money, and energy would be required to ‘get back to normal,’ and finding a shortage of capable contractors created such a feeling of helplessness. My wife and I often found ourselves just staring across the room and wondering if we’d ever get back to the comfort of our old home.”

Protect yourself: There was also a paradoxical quality to the difficult and vulnerable situation Justin and his wife suddenly faced: Justin had a 40-year career in casualty insurance claims, the last 20 as an executive. He says he considers insurance one of the necessities of life: “Food, shelter, clothing, and insurance.” Every few years, he says, you should ask your insurer or independent broker for a customized estimate of your home’s replacement cost.

Then make sure you buy full replacement-cost coverage, an “extended coverage” rider, which adds up to 30 percent on top of your replacement-value limit to cover the surge in material and labor prices that often follows a natural disaster, and an ordinance or law endorsement rider, which pays any extra cost of rebuilding your house to comply with current local building codes.

A major hole in every standard home­owners policy is the absence of coverage for flooding. Judith, 67, and Justin knew this, of course, and had separate flood insurance. But their policy was limited to $19,500 for damage to the house and $9,500 for the loss of its contents.

When the Rubins took out a mortgage 41 years ago in 1973, buying flood insurance wasn’t mandatory. But by 1989 or 1990 their bank had begun to require it, and the Rubins did what a lot of homeowners probably did. “I said fine and bought the minimum,” Justin said. “It was dirt cheap, $250 a year, and I paid no attention to the very small limits, because I thought I’d never use it.”

That’s not as unreasonable as it might sound. Justin lived almost all his life in Long Beach, where major hurricanes are relatively uncommon. He never incurred any losses from any of the cyclones that made it that far north, although there was a nor’easter in 1992 that dumped 16 inches of water into the basement. But that caused only minor damage.

“Sandy was a totally different kind of storm,” Justin said. “In over 66 years living here, I had never experienced a storm surge like this.” The Rubins collected $19,900 for flood damage to their house and possessions, the limits of their policy.

Protect yourself: You can buy flood coverage from private insurers through the National Flood Insurance Program for up to $250,000 (replacement value for the structure) and up to $100,000 (actual cash value for your personal possessions). The average annual premium is $650, but premiums on 250/100 building and contents coverage for low-to-moderate-flood-risk properties ranges from $414 to $1,958; premiums run higher in high-risk coastal, riverside, and other areas. Talk with your agent to determine how much you need.

If your home is subject to other perils not covered by your standard policy, including earthquakes, hurricanes, and hail, you should fill the gap with additional separate policies, typically sponsored by state government agencies.

Standard policies also don’t cover damage caused when your sewer backs up and floods the inside of your house, so you should buy a separate policy or endorsement to add that coverage, typically for $40 to $50 per year.

Our most recent survey of 9,900 subscribers by the Consumer Reports National Research Center found that the bigger the losses, the more hassles homeowners encounter getting their claims paid. About 41 percent of claimants with losses of $30,000 or more ran into at least one problem, including disagreement over damages, disputes about coverage, delays, and slow payout, our data found, vs. only 19 percent of filers with claims below that threshold.

Justin, who said he preferred not to name his insurance company, ran into the same trouble. The insurer cited the policy’s flood exclusion and denied the claim. But the retired insurance man remembered his harrowing experience in the basement and countered that the water percolating up from the laundry sink happened first and that it was caused by a sewer backup, for which he had an endorsement.

“I knew there was no way they could prove where the water came from first, and I was down there and saw it come up from the sink originally,” Justin said. “I didn’t lose my temper. I just laid out the facts.” The insurer changed its standard position and sent the Rubins a check for $5,000, the endorsement limit. The company also paid $1,400 for the loss of a quarter of the house’s shingles under the wind coverage portion of the policy.

That brought the Rubins’ recovery total to $26,300, about one-third of their losses.

Protect yourself: Use your smart phone to report the loss verbally as soon as possible, and use your cell-phone camera to take photos and report the loss using your insurer’s claims-filing app. If the adjuster says your policy doesn’t cover certain damages, ask to see the language exclusion or limit in writing. If the damage estimate or settlement offer is too low, ask your contractor for help in persuading the adjuster that higher numbers are justified. Still disagree? Get a second opinion from another contractor. If you’re still at an impasse, consider hiring a public adjuster, which you can find at napia.com, the website of the National Association of Public Insurance Adjusters. Look for references, several years’ experience, and a state license if required.

Homeowners insurance also paid the Rubins $5,600 for hotels, meals, fuel, a rental car, and various other living expenses because the house was unlivable without water, electricity, and heat, and because both of their vehicles had been destroyed. Their daughter and son-in-law put them up in their house 25 miles away. “Thank God I had a place to go,” Justin said. “Other people didn’t have family to fall back on.”

He also filed a claim with the Federal Emergency Management Administration, which denied his request because the couple had homeowners and flood insurance. But FEMA did direct-deposit another $5,700 into the Rubins’ checking account for living expenses within 10 to 12 days. “That came in handy," Justin said. "I needed that money.”

With the living-expense payments, the Rubins had recovered $37,600.

Protect yourself: Don’t overlook the additional living expenses benefit, which is a percentage of your coverage limit and, in the Rubins’ case, was automatically payable. If you have to live somewhere else, check if you qualify for this benefit under your specific policy, even if you’re staying with family who don’t charge hotel and restaurant rates. And ask your adjuster whether you need to keep and file receipts to collect this payment.

A couple of big losses slipped between the cracks. A flood-damaged whole-house generator that was powered by natural gas and two central air conditioning units weren’t covered by the homeowners policy. They weren’t covered by flood insurance either, because they were—where else?—outside the house.

That might have been $17,000 down the tubes, but then Justin heard about the Sandy Help-New York Rising Housing Recovery Program of federal aid. He applied online, and the program paid for part of the generator and air conditioner losses and for other damage. In all, the aid brought their recovery to $55,600, almost 70 percent. That left them with a $24,400 net loss.

Protect yourself: When there are widespread losses, keep an eye on the news for relief programs and jump through all of the necessary hoops to qualify and apply.

Justin and Judith kept their insurance policies, bills of sale, receipts, and other records neatly organized—but in the basement that got flooded. The wet papers were a mess in Justin’s hands when he went to review them. “Insurance experts advise all the time, keep your documents in a safe place, not in the basement of a house on a barrier island,” he said.

Protect yourself: Make an inventory of your possessions using the “Know Your Stuff” app available free from the Insurance Information Institute, or download free apps offered by Allstate (Digital Locker), Liberty Mutual (Home Gallery) and other insurers. State Farm customers can access the HomeIndex inventory tool free on its website. You can take photos of each item with your cell-phone camera, and storage on the cloud will ensure that the information won’t be destroyed in a major disaster.

Insurance settlements aren’t always paid quickly or even in full, so when you need to purchase materials or hire contractors before your insurer pays, you’ll need to have a cash flow. “I was using my credit cards like crazy,” Justin said.

But he doesn’t like to carry a credit-card balance, so he tapped his retirement savings to pay it off. In the meantime, other insurance details kept taking money out of his pocket, including five separate $1,000 deductibles: two for building and contents flood insurance, two for comprehensive coverage on the two SUVs, and one more for the homeowners policy. “No one ever thinks of that,” he said.

Protect yourself: Follow long-standing personal-finance wisdom and always keep credit-card balances low or pay them off in full each month. That should go a long way toward maintaining a good to excellent credit rating, along with paying your bills on time and regularly checking your credit reports for errors in case you suddenly need credit for home-rebuilding loans, replacement appliances, or a new car. Build an emergency savings fund that is equal to at least six months’ pay.

Recovering from major property losses can be among the toughest challenges in life. Fortunately, many of us will never have to deal with the experience. But should the worst happen, you can survive with planning and preparedness, persistence, street smarts, and maybe a few creative problem-solving skills—along with some help from insurers, relief agencies, friends, and family. In the end, you’ll probably find your way back home, and maybe an even to a better one than you had before.

This article also appeared in the May issue of the Consumer Reports Money Adviser.

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