Will Home Insurance Cover a Weather Disaster?

"Weather disasters used to be considered anomalies, but with the frequency of such events seemingly on the rise, the subject is coming up more and more in our planning discussions," says Susan Hirshman, director of wealth management for Schwab Wealth Advisory and the Schwab Center for Financial Research. "My mantra has always been, Be smart, not sorry—and that obviously applies here."

One of the most common ways to guard against risk is by purchasing insurance—especially when it comes to protecting a home, which typically is not only your single biggest asset but also the one most susceptible to weather-related loss. But what many may not realize is that insurance is far from all-encompassing, which could leave homeowners exposed just when they need help most.

Here are some common insurance blind spots—and how to potentially reduce them.

Policies often fail to keep up with rising home values. According to some estimates, as many as 3 in 4 homes could be underinsured.²

"Most insurers adhere to the 80% rule," says Chris Kawashima, CFP^®, director of financial planning at the Schwab Center for Financial Research. "They will only fully cover a claim if the homeowner has coverage worth at least 80% of their home's total replacement cost; anything less and they'll pay for only a commensurate percentage of the damage."

For example, if a hurricane causes partial damage worth $100,000 and your home's total replacement cost is $1 million, you'll receive coverage for the full claim only if you're insured up to $800,000. However, if you're insured up to $700,000—87.5% of the minimum required to receive full claim coverage—you'll see about $87,500 in relief.

Some homeowner policies have exclusions for damage caused by certain types of natural disasters or weather events, such as earthquakes, floods, and wildfires.

"The fact that a certain risk isn't common in your area doesn't mean you should overlook it," says Bo Meckel, CFP^®, a senior financial planner in Schwab's Centralized Planning Group. "In fact, that often means you can obtain adequate coverage at a relatively low cost."

As the number of billion-dollar weather disasters has grown, so have insurance costs. According to the Joint Center for Housing Studies of Harvard University, homeowners insurance prices rose approximately 24% between 2020 and 2024 alone.³

Those on fixed incomes can be especially sensitive to rising premiums, whose magnitude can undermine other financial moves. Popular income-tax-free retirement destinations like Florida and Texas, for example, are also among the most vulnerable to severe weather events, exposing homeowners to potentially soaring insurance costs. Nationally, insured losses from U.S. storms have increased roughly 8% a year for more than a decade⁴—which means that even if you live in an area with a relatively low risk of severe weather, your home insurance is still likely to cost more in the future as insurers raise premiums for all policyholders.

Even those who can bear the cost of high home insurance now may wish to examine how larger premiums could affect them in the future—including their ability to sell their home. "If insurance costs become untenable, buyers in the area may become sparse and you could end up stuck in a property you can no longer afford," Bo warns.

If you do live in a high-risk area, you might find insurance companies are no longer willing to cover your property. In California, for instance, 7 of the 12 biggest home insurers have limited their coverage over the past two years in the wake of wildfires that caused claims to swell.⁵ "Some of these companies have concluded that the risk to their bottom line isn't worth it, even if they charge higher premiums," Chris says.

As a result, some wealthier homeowners in high-risk states now opt to self-fund the risk. However, few people can financially withstand the loss of an uninsured home, particularly since demand for labor and materials following a disaster often far outstrips the available supply.

If your insurance company drops your policy or you're denied coverage on a new home, shop around and—as a last resort—check whether your state runs a Fair Access to Insurance Requirements (FAIR) Plan program. Many disaster-prone states offer insurance for homeowners who are unable to obtain coverage from a standard provider—though these FAIR Plan policies tend to be expensive. In California, for example, the cost of a FAIR policy averaged $3,200 in 2022,⁶ compared with about $1,976 for a standard policy.⁷ (Costs for both are likely to be higher now given the fires in Los Angeles earlier this year.)

Be aware, too, that FAIR policies provide property damage coverage only for perils like fire, lightning, smoke, and internal explosions. You may need to supplement your coverage with a difference in conditions policy to cover risks such as liability, theft, and water damage.

"If you do decide to self-fund, make sure you have adequate savings to cover the replacement cost of your home and any living expenses you may incur as it is rebuilt," Chris advises.

In addition to investment and retirement planning, your wealth advisor can help you account for the possibility of weather-related disasters and other risks that could adversely impact your financial future. "We have tools to run what-if scenarios and test your plan for resilience," Susan says.