Will Home Insurance Cover a Weather Disaster?

Many Americans have been hit hard—both emotionally and financially—by a recent barrage of extreme weather events. Indeed, in 2024 alone damages totaled nearly $182.7 billion—making it the fourth-costliest year on record, according to the NOAA National Centers for Environmental Information.¹

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

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.