Hurricane season begins this week, so it’s time to review your insurance | Business

The arrival of Memorial Day weekend also means the arrival of Atlantic hurricane season just days later, which officially lasts six months.

Coastal residents have long come to take this step by step as an annual event. Like spring cleaning, or holiday shopping, excluding evacuation plans and stockpiling supplies.

But even long-time residents who live in hurricane-prone areas may find it difficult to understand the multiple types of insurance that can protect against catastrophic losses to most people’s biggest asset: their homes.

This can be more difficult for the countless newcomers who have moved to coastal South Carolina from places where hurricanes weren’t particularly threatening.

For example, if you haven’t had hurricane (“wind and hail”) coverage before, the way these discounts work can come as a big surprise.

Hurricane damage coverage works differently than basic home insurance, with a deductible usually between 1 percent and 10 percent. One might assume that the insured person would pay this percentage of the claim – but this could lead to a costly error.

It’s easy to assume, because that’s how health insurance policies usually work. If you have a 10 percent discount on health care, you pay 10 percent of the bill, right?

But the 10 percent hurricane discount means the customer pays 10 percent of the value of the insured property, before the carrier pays for anything. So, someone with a $300,000 home insured would be on the hook for $30,000.

Yikes.

Do this before you buy a house and the government will help you pay off your mortgage

Of course, higher deductibles mean lower premiums, because it reduces the insurance company’s risk, but people need to understand what they’re signing up for. A 10 percent discount may be a lot, but even a 2 percent discount would mean $6,000 for someone insuring a $300,000 home.

It is also important to understand what the policies cover. For example, what we think of as hurricane insurance does not cover one of the major risks from hurricanes – floods – which is why you need a separate policy.

It’s easier for renters, because renters insurance is more of a comprehensive that covers the property and not the building inside.

Higher mortgage rates will increase payments and pricing for many homebuyers

It’s a good idea to review insurance policies annually because needs can change, and because you may be able to find a better deal. Making sure one has adequate coverage and manageable deductibles is part of this process.

So, how can homeowners plan to pay thousands or tens of thousands of dollars in deductions if the “big guy” goes on strike?

An emergency fund is the answer, and this is truly something everyone should strive for. An emergency fund is ideally several months of living expenses, and is set aside in the event of a catastrophe or unexpected major expense.

I wrote about it in the past Disaster savings accountswhich is a distinct tax way to raise money in South Carolina, but it is difficult to find banks that offer this money, and the money is put into savings accounts that yield little interest.

US inflation-linked savings bonds are a good option for long-term savers

This year’s best emergency savings idea is Fed Bonds (available only online at Treasurydirect.gov). These safe savings bonds currently pay an interest rate of 9.62 percent. Prices are reset every six months based on inflation.

It’s for long-term savings but can be redeemed after less than a year, at the cost of losing the last three months of interest. This is much better than getting a one-time income tax deduction in South Carolina and then earning very little interest, perhaps for years.

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Reach David Slade at 843-937-5552. Follow him on Twitter @DSladeNews.