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Updated on Friday, November 16, 2018
Recovering from a major hurricane can be overwhelming. Many families facing large out-of-pocket storm costs may wonder what the first steps are to begin rebuilding.
To help you get started, we’ve rounded up advice for how to proceed, sort out which insurance will — or won’t —cover and tap financial resources available to the underinsured.
Step 1: Figure out your coverage
The first thing you should do is print out a complete copy of the most recent insurance policies you have on your home, said Amy Bach, co-founder and executive director of United Policyholders, a national insurance consumer advocacy organization.
Many homeowners make the mistake of calling the insurance company and getting things started before they know what kind of coverage they have, Bach said. Many adjusters are overworked, especially right after a natural disaster. “They have lots of clients and sometimes they try to take shortcuts to tell you what coverage you have,” Bach said. “Sometimes they may be right, but they may be wrong.”
She added: “You have the biggest stake in getting the most money out of your insurance so it’s up to you to do your homework.”
You can contact the insurance company directly and ask them to email you a complete copy of your policy. If you worked with an agent, you can try contacting them directly for a copy, too. If you can’t remember who your insurer is or how to get in touch with them, Bach recommends you contact your state’s insurance department for help.
The declaration page
Once you have a copy of the policy in hand, focus on the declaration page, a summary of the policy and how much coverage you have available.
Coverage is usually split into four main buckets:
- Dwelling: Covers the home itself.
- Contents (personal property insurance): Covers the items you own inside the home.
- Other structures: Covers items that are not part of the dwelling but on the property such as detached garages, driveways, fences, sheds and pools.
- Loss of use: Coverage for any expense you have to incur because you cannot live in your home.
You may or may not have each type of coverage and the extent to which you’re covered will depend on your policy. It may also include personal liability protection and coverage for guest medical payments (when someone else gets hurt at your home).
Flood insurance vs. homeowners insurance
Standard homeowners and renters insurance policies do not cover damage from storm surges and other flooding. That requires separate policies, typically purchased from the U.S. government.
But they should cover damage from, say, a neighbor’s tree that fell on your house and left a hole in the roof where water came through. Questions about claims can generally be answered by your state’s insurance department.
Homes financed with a federally-insured mortgage in a high-risk flood area, also called a special flood hazard area (SFHA), are required to buy flood insurance from the National Flood Insurance Program, run by the Federal Emergency Management Agency (FEMA), or as a separate policy through a private insurer. SFHAs are areas that have a minimum 1% chance of flooding in any given year. These are also known as 100-year flood plains.
If you live in a moderate- to low-risk area or don’t have a federally-backed mortgage, purchasing flood insurance is optional. However, a lender can also require you to purchase flood insurance, even if you live in a moderate- to low-risk area.
National Flood Insurance Program provides up to $250,000 of coverage for the structure of a single-family home and up to another $100,000 for personal possessions. Alternatively, or in addition to NFIP flood insurance, you can purchase “first dollar” or primary flood insurance policy from a private insurer.
According to federal data, the average paid loss to NFIP policyholders after the four most-recent major hurricanes in 2016 and 2017 were:
- $55,978 to 581 policyholders after Hurricane Maria in September 2017
- $115,430 to 75,865 policyholders for Hurricane Harvey in September 2017
- $47,202 to 21,824 policyholders for Hurricane Irma in September 2017, and
- $39,249 to 16,547 policyholders for Hurricane Matthew in October 2016
Issues with flood insurance
“The problem with flood insurance is that it does have some very nit-picking requirements,” Bach told MagnifyMoney. Sometimes, companies will say they’ll only pay for items that physically came into contact with water.
That means flood insurance often won’t pay for a damaged foundation or water that ran up a wall, Bach said. Or, it may only provide coverage that can seem partial to homeowners. For example, the coverage may replace the lower cabinets in your kitchen, but they may not match the cabinets that weren’t affected by the flooding.
Problems meeting code. Flood insurance also may not cover code upgrades. If your home was built in the 1960s, for example, and had an old electrical system, the insurance company usually won’t pay to upgrade it, but the county may not allow you to put back old wiring either.
In those cases, Bach said to “go back to the policy and say ‘I cannot replace unless I comply.’” The insurer may require you to provide documentation from the local government as proof. And sometimes, flood insurance policies only cover code upgrades if the damage done to the system is 50% or more.
Finally, Bach tells MagnifyMoney that flood insurance generally does not cover the costs of living elsewhere while your home is repaired. In those cases, your homeowners insurance policy may cover your displacement costs.
Wind. Wind must be insured separately and sometimes this coverage is available only from a state-run insurer of last resort.
What if I don’t have flood insurance?
Excluded from homeowners insurance coverage is flooding caused by rising water, which Bach said is going to be most people’s problem. But, the United Policyholders executive director added: “A little argument goes a long way.”
Homeowners whose insurance does not cover hurricane-related expenses may qualify for disaster aid or low-interest loans, which we’ll cover below.
Step 2: Document the damage
Do the best you can to document all of the damage using pictures and videos. Do this before you start cleaning up or making repairs.
Step 3: Prevent further damage
Do what you can, within reason and with consideration of your health and safety, to prevent further damage to your home. At this point, you may want to reach out to the insurer and begin the claim process. If your policy covers the cost, the insurer can send someone to help drain the water, patch up holes and dry out your home.
“You want to try to get that done as quickly as possible so that you don’t have a mold problem,” Bach said.
If the insurer cannot get out to your area quickly or your coverage does not cover temporary repairs and drying out, then you may elect to do what you can on your own or hire a professional in your area.
Either way, take care to keep swatches of carpeting, wallpaper, furniture upholstery and window treatments — things that may impact the amount payable on the claim. Try to avoid tossing out damaged items until you file a claim, and the insurance adjuster pays a visit to your home (described below). You can learn more about proper flood cleanup in this federal Homeowner’s and Renter’s Guide to Mold Cleanup After Disasters.
“If you can afford it, you should hire somebody and get them to do it as soon as you can,” Bach said. “But don’t hire the first person you can, because disasters do bring out scam artists.”
If FEMA or state emergency services are in your area, they may be able to assist you with drying out your home. And, if there is a local assistance center set up near you, you can go there for help and information. Find a disaster recovery center near you here.
Step 4: File a claim with your insurance company
If you didn’t notify your insurance company before you started cleaning, you should contact them to file a claim as soon as possible. The insurance company should send you claim forms to fill out and you should try to return them as soon as possible to avoid delay in service.
The insurer should then arrange for an insurance adjuster to come out and assess the damage to the property. The adjuster will inspect the property to estimate how much the insurance company will pay for the loss. They will likely interview you, too.
Be prepared to show the adjuster any structural damage and compile a list of damages so the visit is efficient and you don’t forget anything. If you have receipts for any of the damaged items you should present copies to the adjuster. Be sure to ask any questions you may have about your policy and the coverage it may provide.
Finally, if you had to relocate and your policy covers loss of use, keep those receipts and record all additional expenses you had to take on as part of your temporary relocation since you will need to provide proof of those costs.
Step 5: File for federal disaster assistance
If your home is in a presidentially declared disaster area, you can apply for FEMA individual disaster assistance. If you do not have internet access, you can call 800-621-3362.
Disaster aid may cover:
- Temporary housing
- Lodging reimbursement
- Home repairs
- Home replacement
- Permanent or semi-permanent housing construction
- Child care expenses
- Medical and dental expenses
- Funeral and burial expenses
- Essential household items, clothing, tools required for your job and necessary educational materials
- Heating fuel
- Cleanup items
- Damage to an essential vehicle
- Moving and storage expenses
However, FEMA disaster grants are generally small — see the following chart for average amounts from recent storms. The organization emphasizes that these figures are from only one program, and housing grant money is intended to help survivors get a roof over their heads and not to rebuild a home to its pre-disaster condition. FEMA encourages homeowners to consider the federal grant program as a last resort after insurance and federal loan programs, and not to factor federal grant assistance into disaster preparedness planning.
Below is a breakdown of the average grant payout for recent disasters from the Individuals and Households Program, one the of several disaster assistance programs FEMA offers.
|Disaster||Average IHP award|
Hurricane Sandy (2012)
Hurricane Matthew (2016)
Hurricane Harvey (2017)
Hurricane Irma (2017)
Hurricane Maria (2017)
Hurricane Florence (2018)
Hurricane Michael (2018)
You can find information about other kinds of individual assistance FEMA provides like disaster unemployment assistance and crisis counseling in this factsheet.
FEMA may require you to provide evidence that your insurance company declined your loss claim and will not cover your disaster-caused loss. When you apply for disaster assistance, you’ll need to provide identifying information like your Social Security number and a current mailing address.
Delays with disaster assistance
It’s important to remember some FEMA funds are funneled through the state government, so depending on how your state allocates its resources, your reimbursement or assistance may take months.
According to a FEMA spokesperson, those still waiting on aid from a previous disaster may qualify for FEMA assistance.
Where else can you turn for help?
Loans are now increasingly needed to help people get back on their feet after a storm. “Insurance does fall short a lot more than you would expect,” said Bach, who has been working in insurance consumer advocacy for 26 years.
Below are a few loan options you can turn to for help.
Government assistance programs
The U.S. government provides the following programs that may assist eligible borrowers who need assistance with home repair, replacement, restoration or improvement financing.
Homeowners with an existing mortgage may also find relief with their loan servicer — many lenders will temporarily reduce or suspend payments in a process called forbearance. The Mortgage Bankers Association says one of your first calls following a hurricane should be to your mortgage servicer. The Consumer Financial Protection Bureau provides information on this and other financial problems following a natural disaster here.
SBA disaster loans
The U.S. Small Business Administration provides financial assistance not only to business owners, but also to homeowners and renters in federally declared disaster areas. These low-interest loans may cover up to $200,000 to repair or replace the primary residence to its pre-disaster condition. Collateral is required to secure loans over $25,000. Secondary homes and vacation properties are not eligible for an SBA home disaster loan. Homeowners may also borrow up to an additional $40,000 with a property disaster loan to replace damaged personal property.
For some homeowners, the SBA may be able to refinance all or part of an existing mortgage up to $200,000 if they:
- Don’t have credit available anywhere else.
- Suffered a substantial amount of disaster damage that isn’t covered by insurance.
- Intend to repair the damage.
If you are already paying back an SBA disaster loan from a previous storm, you can still take out another as long as your home was in a declared disaster area and you are current on all of your payments.
FHA 203(h) mortgage
The Federal Housing Administration’s 203(h) loans are government-insured mortgages that may be used to purchase, improve, remodel or rebuild a home. To be eligible, the borrower must reside in a federally designated disaster area and the home must be damaged or destroyed to an extent that requires reconstruction or replacement.
One of the biggest benefits of a 203(h) mortgage is that it does not require a down payment. However, borrowers must pay closing costs and mortgage insurance, which is collected as one upfront charge at the time of purchase and monthly premiums tacked onto the regular mortgage payment. FHA mortgage limits apply and can be found here.
Other types of government loans
SBA disaster loans and the 203(h) mortgage are programs specially designed for disaster victims, but there are other government programs — available to anyone — to help homeowners who want to make repairs.
FHA 203(k) loans
The Federal Housing Administration’s 203(k) program is designed to fund a home renovation. Homeowners can use this loan to refinance their current mortgage to pay for repairs. The minimum credit score to qualify is relatively low, but there are several requirements you will have to meet, including working with an FHA-approved lender and possibly a 203(k) consultant. Read more about the different types of 203(k) loans here.
USDA Home Repair program
The Department of Agriculture offers the Section 504 Home Repair program for low-income homeowners. The program provides loans to repair, improve or modernize homes. It also provides loans or grants to low-income elderly homeowners to remove health and safety hazards.
The USDA offers repair loans up to $20,000 and grants up to $7,500. You can combine a loan and grant to borrow a total of up to $27,500. The property must be in an eligible area. To learn more about the home repair program, you can contact a USDA home loan specialist in your area. You can check income eligibility here.
VA rehab loans
The Department of Veterans Affairs in April 2018 updated its alteration and repair purchase and refinance loan program. The VA allows eligible borrowers to refinance a mortgage based on what the appraised value of the property would be after renovations, up to $227,500. The borrower can also finance closing costs. You can apply for a VA loan through a VA-approved lender.
Fannie Mae HomeStyle® Renovation mortgage
Fannie Mae offers a HomeStyle Renovation mortgage that can help finance home repairs. Homeowners could, for example, refinance the costs into an existing mortgage. Borrowers can finance up to 75% of the appraised value of the property after the renovations are completed. Read more about the HomeStyle program here.
Nonprofit and charitable aid
You may be able to get assistance from national and local nonprofit organizations or charitable institutions. Such groups include the American Red Cross,Habitat for Humanity,Mennonite Disaster Service and the Saint Bernard Project.
Beyond meeting hurricane victims’ immediate needs, these organizations and others may help rebuild homes in your area, so it may be worth reaching out to a local charity regarding grants and other services.
Habitat for Humanity helps low-income survivors rebuild or repair their home if they meet Habitat’s requirements. Contact your local Habitat for Humanity office.
Other financing options
If you have a good credit score and the project’s costs are relatively low (between a few hundred and a few thousand dollars), you may want to consider taking out a personal loan or using a credit card to finance repairs. Bach told MagnifyMoney you might also elect to do this if you don’t have cash on hand to cover temporary living, cleanup and minor repairs that may be later reimbursed by insurance.
Personal loans typically have fixed rates and terms. You can usually borrow anywhere from $1,000 to $35,000 at rates between 6% and 36% APR. There are a few pros and cons with personal loans:
- Unsecured: This means you won’t risk losing an asset if you are unable to repay a personal loan.
- Fast turnaround: You can generally apply for a personal loan in minutes online and, if you qualify, you may receive the lump-sum amount in your bank account as soon as 24 hours.
- Credit requirements: Borrowers generally must have a good credit score and a low debt-to-income ratio to qualify. Borrowers with the highest credit scores and lowest debt ratios generally receive their best terms.
- Fees: You may be charged a loan origination fee or a prepayment penalty.
To get your best offer, compare loan terms and rates at LendingTree.
If you plan to use a credit card for storm-related expenses, one idea is to apply for a new credit card with a 0% APR introductory offer on all purchases. Note that if you’re still carrying a balance once the promotion ends, the new interest rate on the card will apply to whatever balance is left. Some lenders may charge deferred interest, meaning they may charge interest on everything you’ve charged during the promotional period.
Credit cards charge an average APR around 15%, but there are cards with lower (and higher) rates. Generally, lenders offer the lowest interest rates to borrowers with the highest credit scores.
Credit cards typically charge a variable rate and it may change based on your daily balance, so the minimum amount you are required to pay back each month may fluctuate.
When to consider bankruptcy
A homeowner may consider bankruptcy if the cost of repairs exceeds the value of the property, said John C. Colwell, a bankruptcy attorney and president of the National Association of Consumer Bankruptcy Attorneys. He compared it to a vehicle that’s been totaled in a car accident.
But first, Colwell said, homeowners should check for any state protection that may make bankruptcy unnecessary.
California law, for example, protects homeowners after a foreclosure. If a $600,0000 house with a $400,0000 mortgage burns down in a fire, the homeowner can walk away and let the bank foreclose on the home. If the bank forecloses for $300,000, the original homeowner does not owe $100,000 to the bank to satisfy the mortgage. While the homeowner must face the consequences of a foreclosure, they would not need to file for bankruptcy.
But in most other states, the mortgage company has the legal right to try and sue the homeowner to collect the remaining balance on the mortgage. In those cases, it may be appropriate for a homeowner to file for bankruptcy, Colwell said.
If you were affected by a major hurricane or other natural disasters, help is available. Sources of financial assistance range from your own insurance policies to government assistance and loans, to charitable organizations, to simply borrowing from a private lender. Rebuilding may be costly and seem overwhelming, so look to resources like United Policyholders and the Insurance Information Institute, or your state’s emergency management office.
We also have a supplemental guide for homeowners affected by Hurricane Florence.
If you need advice when deciding between options, consult a fee-only financial professional who has experience working with homeowners following a disaster.
If you are considering bankruptcy, it’s recommended you speak with a bankruptcy lawyer about the options available to you and any protections provided by your state.