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Protection Gap

Are you financially prepared for the next hurricane?

Hurricanes are a common phenomenon for people living along the East Coast and Gulf of Mexico. Hurricane season runs from June to November. Last year, a record number of six hurricane made landfall on US shores. Yet, despite living with the threat of hurricanes, many people find themselves badly prepared and don’t realize the extent of their financial vulnerability until it’s too late. With climate change increasing the frequency and intensity of hurricanes, this is a growing concern for many families living in areas affected by hurricanes. Parachute Insurance interviewed homeowners in Texas, Louisiana, Florida and North Carolina who suffered damages from recent hurricanes to learn more.

“I didn’t understand my insurance policy before the hurricane struck…I wasn’t aware of everything that was excluded, like flood damages. I didn’t know what a 5% hurricane deductible meant…But I have learned my lesson.” – Parachute Insurance market research participant from Texas.

Many people are financially vulnerable to hurricanes, yet don’t realize the extent of their vulnerability until it’s too late. Let’s discuss why.

Misguided Trust in Standard Homeowners Insurance

While home insurance policies certainly provide protection and have many benefits, there is a misperception around what is – and what isn’t – covered. For starters, standard policies do not cover flood damage, a common and costly side effect of hurricanes due to heavy rain and storm surges. According to FEMA “just a few inches of water can cause tens of thousands of dollars in damage.”

Most standard insurance policies also exclude expenses for tree removal. And yet they are extremely common due to the high winds generated from hurricanes.

Additionally, homeowners insurance policies in hurricane-prone regions often have deductibles for damages caused by hurricanes. This deductible typically ranges between 2% to 5% of the home’s insured value. In other words, for a house valued at $400,000 and a 5% hurricane deductible, the homeowner has to chip in up to $20,000 before the home insurance policy kicks-in. A lot of money not everybody has available. Unfortunately, over half of homeowners either are not even aware of these deductibles or are confused about how to apply them correctly.

Finally, the claims process can be stressful and daunting, especially for families already struggling through a difficult time.

“I had to fight with the claim adjuster over the reimbursement amount. Lots of back-and-forth negotiation. I hated it.” – Parachute Insurance market research participant from Louisiana.

Exclusions, high deductibles and slow claim payments are aspects of insurance policies that are often not planned for yet can cause intense financial and emotional stress on families.

Lack of Emergency Savings

Watching your home get damaged by a hurricane is already a stressful event. Not knowing what portion of this damage will be covered by your home insurance, how you should finance the large hurricane deductible or how to pay for immediate necessary repairs, puts additional pressure on you.

According to the Federal Reserve, 37% percent of adults either cannot pay for an unexpected $400 emergency expense or have to borrow or sell something to do so. Even for families that have some savings, the immediate aftermath of a destructive hurricane will cause additional expenses that can easily cost tens to thousands of dollars. The wait time to receive their insurance claims can deplete any savings left.

As a research participant from North Carolina expressed: “It took my insurer 3 months to approve and pay my claim. I couldn’t wait that long with the repairs. It was a weird situation, but I had to beg my uncle for money.”

Some claims can even be rejected altogether. Having a standard home insurance policy alone is often not enough protection from the financial impact of hurricanes.

Increase your Preparedness

There is not one “hurricane insurance policy” product that covers everything in terms of damages and financial effects from a hurricane. Your best course of action is to develop a hurricane preparedness plan that includes a combination of insurance policies and savings to cover short and long-term expenses. You don’t want to wait until after a hurricane strikes to discover the shortcomings of your home insurance policy. By understanding what will be covered, you can fill any gaps accordingly.

As a rule of thumb, save between three to six months of fixed expenses in cash as an emergency fund. This money can help you recover in the immediate aftermath of a hurricane, be used towards your deductible, or give you some financial freedom as you wait for your claims to be paid.

Parametric insurance can be a useful building block for your hurricane preparedness plan. With Parachute Insurance, you will receive emergency cash within hours after a hurricane hit. We redefine what insurance stands for: quick, easy, and reliable financial protection in times of need so that you stay resilient and recover quickly. It’s that simple.

As you build out your hurricane preparedness plan, consider Parachute Insurance for your first line of defence against hurricanes. You may not be able to predict when the next hurricane will happen and if your home will be affected, but you can ensure that you are financially prepared.