Hurricane Sandy: What Homeowners Need to Know - Smartmoney.com

By QUENTIN FOTTRELL

It's hard to say which causes homeowners more anxiety: the radar images tracking Hurricane Sandy's path up the eastern seaboard or the pages of confusing legalese that makes up their home insurance policies.

The biggest financial pitfall homeowners hit by a hurricane face, experts say, is how insurers define wind damage and flood damage. The insurance industry classifies wind damage as a direct result of a hurricane or tropical storm, but flood damage is more complicated, according to a spokesman for the National Association of Insurance Commissioners. "This was a concern after Hurricane Irene," he says. "The big question is whether it's flood or non-flood." Navigating that distinction has caused tremendous delays in processing insurance claims from previous storms, he says.

Of course, some of the confusion over claims comes from people not understanding their coverage in the first place. That goes for renters as well as owners. For instance, the building owner -- or the owner's insurance company -- is responsible for paying for damage to an apartment building or condo, but tenants that don't have renters insurance are not covered if there is damage to their belongings. Experts advise that consumers contact their company before the storm hits for emergency numbers, and photograph and document all their valuables now.

But there is a possible upside for homeowners in the path of the storm. If Hurricane Sandy is downgraded to a tropical storm before it makes landfall -- as happened with Hurricane Irene last year -- policyholders with wind damage should not have to pay out a pricey hurricane deductible. This could be a big savings for those who live in coastal areas, most of whom are required to pay a mandatory hurricane deductible, experts say. Some insurers have raised those deductibles from 1% or 2% to as high as 5% -- dramatically adding to out-of-pocket costs for policyholders.

What's more, insurance companies have learned lessons from the far more devastating Hurricane Katrina in 2005, experts say, when many policies took months to process. Insurance companies in the northeast will be deploying "catastrophe teams" -- thousands of extra customer-service reps and claims adjusters -- to deal with the spike in expected claims from householders in the path of storm, says Roseanne Placey, a spokeswoman for the Pennsylvania Insurance Department, the agency that regulates the insurance industry in that state.