Is Your Home Covered If a Natural Disaster Strikes?
Hosts Sandy Block and Ryan Ermey are joined by longtime Kiplinger contributor Kim Lankford to discuss how to ensure your home is protected if a natural disaster hits. The pair also explains why college-branded debit cards aren't a smart move.
Ryan Ermey: Sandy and I would prefer that you didn't meet disaster, financial or otherwise. But during peak hurricane season, being prepared could mean saving a ton of time, money and frustration should calamity strike. Frequent Kiplinger's contributor Kim Lankford joins the show to talk disaster preparedness and our main segment. On today's show, Sandy explains why college-branded debit cards aren't a good deal, and I make sure we're all getting our terms straight when it comes to market downturns. That's all ahead on this episode of Your Money's Worth. Stick around.
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Ryan Ermey: Welcome to Your Money's Worth. I'm Kiplinger's associate editor Ryan Ermey joined as always by senior editor Sandy Block. And continuing with our back-to-school theme, Sandy, a story in your section in the September issue of Kiplinger's, the Ahead section, is something that we wanted to chat about on the podcast today.
Sandy Block: That's right. A lot of young people will be starting college in the next few weeks, and a little history here. When I was in graduate school in the early '90s, everywhere you go, you'd see these tables where set up by credit card companies, and if you signed up for credit cards, you got anything for a pizza to... I remember in one case you could get airline tickets. That's how-
Ryan Ermey: Wow.
Sandy Block: ... eager they were to get college students to sign up for these credit cards.
Ryan Ermey: Well, yeah. They were trying to get you to sign up when you were 15...
Sandy Block: Oh, no, I wasn't 15, but I like to think I was wise to the game, but what happened was that so many college students got in so much debt that in 2009, Congress passed a law that really cut down on that, and now unless you're 21, it's very hard to get a credit card without your parents' permission. So, you don't see the credit card tables anymore, but what has replaced them are debit card tables. Young people going to college now will see some of these same financial institutions offering, promoting debit cards that are often branded with the college name, and who wouldn't-
Ryan Ermey: Right. I remember these.
Sandy Block: ... want a debit card with your college alma mater on it? It sounds really cool.
Ryan Ermey: That's right.
Sandy Block: Well, here's the problem. These financial institutions spend a lot of money to get this branding, and who do you think is paying for that? The students who get the debit cards. The students in some of these schools paid an average of 2.3 times more in fees for these branded credit cards than students that got debit cards that weren't hooked up this way.
Ryan Ermey: I see.
Sandy Block: So, you're not going to go into deep debt, but you could end up paying a lot more for the right to use this debit card than you would if you got a debit card from your own credit union or your parents' bank or something like that. I'm not saying that all these debit cards are bad, but you really do need to read the fine print, see what the terms are, because one of the problems is oftentimes the accounts these students set up where they're in school, they keep for the rest of their lives. People are really sticky when it comes to banks. So, you could be paying these high fees for many years.
Sandy Block: What we recommend is compare the fees and rates and other things with a debit card from your credit union, from your local bank. Shop around because there's a lot of financial institutions.
Ryan Ermey: Well, I went off to college with a Bank of America account because there was a bank of America ATM in my dorm. I still bank with Bank of America. I can see why students are a popular target for marketing for cards like this because college students are, at least at the college I went to, and I went to GW, are pretty frivolous and, dare I say, dumb with their money, which makes sense for... I mean, kids in my dorm used to pay to get their laundry sent out every... like really heinous, and it was because a lot of them didn't know how to do laundry. How can you ensure or what is at least part of the way toward ensuring that your kid is going to be smart about debit and banking by the time they get to college?
Sandy Block: Well, that's a really good question, Ryan. Actually, in our annual banking survey, which we will post in the show notes, we give a couple of examples of best banks for families with students. These accounts are ideal for... They're tailored for kids and teenagers. They let you set up an account for your teenage child that helps them learn how to manage the money with your supervision, and then you can... Once the child turns 18, it could become his or her own account.
Sandy Block: But hopefully, by that time they've learned, and these, like all of the banks in our Best Banks survey, these banks have low fees and lots of flexibility. So, we'll post the show notes on this. Our best bank for families with kids is that Capital One 360 account. It's an easy to manage no-fee account. So, again, you're setting your child off on the right foot. They're already starting out with a no-fee account. If they keep that account into adulthood, more's the better.
Ryan Ermey: And if you can teach them how to do laundry as well.
Sandy Block: There was a girl in my sorority house who didn't know she had to change her sheets.
Ryan Ermey: Ugh.
Sandy Block: I know.
Ryan Ermey: Alright, well, listen. Prepare your kids financially and just in a life skill. My goodness. Will your homeowners insurance cover flood damage? That depends. Find out if you're prepared for hurricane season next.
Ryan Ermey: We're back, and we're here with Kiplinger's contributing writer Kim Lankford, and we thought it will be a good time to have Kim on because she is a master of all things disaster preparedness, and we are headed into... The master of disaster. We're headed into peak hurricane season coming up. So, Kim, thank you so much for coming on.
Kim Lankford: Oh, thank you for having me.
Ryan Ermey: So what does your homeowners insurance actually cover in the case of a possible disaster and where might it be coming up short?
Kim Lankford: Well, especially considering that it's hurricane season, and the peak hurricane season runs through the end of August through September, so it's a really good time to be thinking about this. There's two key issues. Your homeowners insurance generally covers damages caused by wind, like wind-driven rain and things like that if anything happens to your roof, if anything comes through your windows. However, any water that comes from the bottom up is considered flooding, and that isn't covered by homeowners insurance.
Kim Lankford: So, in Hurricane Katrina, in many of the hurricanes that have happened since then, especially Hurricane Harvey, this was a huge issue because some of the damages were covered by homeowners insurance, and some were considered flooding and aren't covered by the policies.
Sandy Block: Yeah, and Kim, I interviewed someone recently who, I think he's one of your regular sources, who said that unless you live on top of a mountain, you should have flood insurance because even people who live outside traditional flood zones have had flooding and things like Harvey. So, the question is, given that where do you go to get flood insurance and how much does it cost?
Kim Lankford: That's a great point because in Houston, for example, a lot of people who are not considered to be in flood zones ended up getting flooding, and a lot of it is because when there's new development going on in a community, it changes the runoff, so a lot of times, you can get flood damage even if your mortgage company didn't require you to get flood coverage. The key place that people have gone traditionally is the National Flood Insurance Program, NFIP, and you can go to Floodsmart.gov and get information about their policies.
Kim Lankford: But in several states, especially Florida and Texas, there's also a growing private flood insurance marketplace. So, you may also want to talk with your homeowners insurance agent to find out if they can sell you the National Flood Insurance Program, but also if there's competing policies from private insurance. If you are in a low-risk area, it may just cost you about $450 a year to get the maximum coverage from the federal program.
Kim Lankford: If you're in a higher-risk area, it could be hundreds or even thousands of dollars a year, and that's where it's really good to comparison shop.
Ryan Ermey: So, floods are obviously an issue. Hurricanes are an issue, but you look at the news, and there's tornadoes. There's wildfires. It's an absolute disaster out there. What will my homeowners insurance cover in the case of, say, a tornado or a wildfire, and what am I going to be out?
Kim Lankford: Well, the key thing with the tornadoes and wildfires is generally the damages are covered by your homeowners insurance. You don't have the issue of the wind versus water that you do with hurricanes. You usually have to pay your deductible, so make sure that you have enough money in your emergency fund to be able to cover that. But the key thing with some of those things like wildfires and tornadoes is that a lot of times the home is a total loss, and that's where it's really important to keep up to date with your amount of insurance coverage.
Kim Lankford: Talk with your agent. Talk with your insurance company if you've done any renovations to make sure they know about all of the high quality materials that you've used. If you've added an addition, just make sure you have enough coverage because especially with the California wildfires, a lot of people fell short with that. They want to rebuild their homes, and they didn't have enough coverage in order to finish the whole job.
Sandy Block: So, Kim, what about living expenses? A lot of times people are put out of their homes for months, as you said, if the home is completely destroyed. Does your insurance cover most of that?
Kim Lankford: It generally does, and this is actually really important. If you have a total loss, and you're out of your house for a while while it's being fixed, this is one of the first checks that you might get. Especially during Hurricane Katrina or Hurricane Harvey, I talked to a lot of people after both of those hurricanes, and they were very surprised that they would get the coverage to pay for the hotel and other additional living expenses while their house was being fixed.
Kim Lankford: Sometimes, it can cover you for up to a year of those expenses, which can be very, very valuable if you're in an area where there was a hurricane, and everyone is competing for contractors at the same time. A lot of times, it can take much longer to get your home repaired than it usually would. So, keep track of those receipts when you're outside of your house and talk with your insurance company.
Kim Lankford: Even sometimes they'll give you a debit card to be able to cover some of those expenses or might send you a check, just a check up front in order to start covering those expenses. That can give you some cash to get started with everything right after the disaster.
Ryan Ermey: Is there a limit to where I can stay? I mean, I surely can't check into the Ritz for a couple months while they're rebuilding my house, can I?
Kim Lankford: They do say that it does have to be of the same type of level of what you were coming from. So, you need to work with your insurance company and your insurance-
Sandy Block: Not the Ritz, right?
Kim Lankford: ... to make sure. Exactly. You're going to be careful about how much they give you.
Ryan Ermey: You don't know how large I'm living. I'm living high up on the hogs.
Sandy Block: Okay, but Kim, what about your stuff? Obviously, when people's houses burned down or wiped out by tornado or even by a flood, oftentimes they lose a lot of their possessions. What are the chances that you're going to get your stuff replaced?
Kim Lankford: Well, and this ends up being one of the most complicated parts of the claim, and especially when I was talking with people after hurricanes and also after wildfires and tornadoes, because in many cases, in those, in those situations, you don't even have waterlogged stuff anymore. It's thrown throughout everywhere or just totally destroyed by fire. So, it's really important ahead of time. This time of year is just a good time to go through your house with your smartphone and do a home inventory.
Kim Lankford: Just open closet doors, open drawers, just be able to show everything that you have in your house and just keep that on the cloud somewhere. Keep a copy of that somewhere where it could be accessible if you do end up having a claim because that's going to be the hardest part. I mean, people tell me they've gone through the disaster. It's a traumatic situation as it is, and then the insurance company says, "Here, give me a list of all the stuff you lost," and it's hard to remember everything.
Kim Lankford: So, just go ahead and go through that. Also, if you have any valuable items, it's a good idea just to take pictures of that and store that on the cloud too. So, you'll have all of that evidence if you really need it when the insurance company asks you to provide it all for a claim.
Ryan Ermey: So when you talk about valuable items, my question is you hear about the tornado or the hurricane or whatever coming, and you think, "It's time to get out of Dodge. I got to go visit my Aunt Sally in Cleveland. We're out of here." If you're leaving the house with your stuff, what should you be taking with you in terms of, say, valuables, in terms of important documents that will really make your life easier post-disaster?
Kim Lankford: That's a great question. I mean, if you do have time, if you don't have that inventory yet, run through your house with your camera and take some pictures. I actually talked with someone after Hurricane Katrina who had done that. Sometimes you do have an evacuation warning, and you do have some notice, so you can go through and do that, and she said it made a huge difference in her claim. So, start with that.
Kim Lankford: Also, a lot of people, and this is especially in areas that do have storm-prone areas, tend to have something called a go bag (see 12 Must-Have Items for Your Home Emergency Kit). A lot of times, they will keep some of their very important papers in there. This could be receipts for some of their valuable items, but also a lot of their important identification papers whether it's their passports, their Social Security card, even their birth certificate, their driver's license. Some of those things that can make it much easier to get everything else reimbursed and everything else replaced later on, because if you're missing all of those at once, it gets very, very difficult.
Kim Lankford: Also, it's important to keep some cash. I mean, a lot of times after these disasters, the ATMs stop working, so it's just really important to have some of that on hand. Then key things like how to contact your insurance company. A lot of insurance companies now have apps where you can start your claim or just key numbers. Also, during some disasters, people are evacuated far and wide for quite a while, and they'll have different ways to get in touch with their people, may even have people coming to the area and just meeting with everyone all at once.
Kim Lankford: So, find out about the best way to get in touch with them and just think about some of your other things that would be difficult to replace and important to have. Maybe a copy of your will, some of your important legal documents, and just those key things. Have them in a place that's easy to grab and go if you need to.
Ryan Ermey: Well, there you have it. I mean, obviously, we're not wishing disaster on any of our listeners, but in the case that disaster does strike, it pays to be prepared. Kim, thank you so much for coming on and giving us this fantastic advice.
Kim Lankford: Well, it's my pleasure.
Ryan Ermey: If you're talking about a potential decline in stocks, make sure you have your terms straight. Explain Like I'm Five is next.
Ryan Ermey: We're back, and before we go we wanted to do another Explain Like I'm Five segment, and today, I am the one explaining.
Sandy Block: And I am the five-year-old, and my five-year-old question to you, Ryan, is we've had a couple of really rough days in the stock market, and there's a lot of talk about bears. So my question is are we in a bear market? If not, how will we know when we're in one?
Ryan Ermey: Given the recent market volatility, you are hearing a lot of that kind of language. You might hear people say, "The market's in a correction. We're headed for a bear market. We're headed for a recession." So, it makes sense to make sure that we're getting our terms straight. First of all, when we say the market, there's no uniform thing that the market is. We're generally talking about one of the major index has meant to serve as a proxy for the broad stock market.
Ryan Ermey: The ones who hear a lot of the Dow Jones industrial average and the S&P 500 stock index. At Kiplinger's, We're generally referring to the S&P whenever we say the market or the broad stock market. It's a market cap-weighted index of the 500 or so biggest stocks by market size. That is stock price times shares outstanding on the market. So, essentially, the bigger the company, the more it's going to move the index, and we talked about the difference between the major market indexes on a previous episode of our show. So, go back and look for that if you'd like more detail.
Ryan Ermey: When tracking these indexes, you're going to be listening to the radio. You have to make sure that you're paying attention to percentage drops and not points.
Sandy Block: Oh, yeah. Not point drops.
Ryan Ermey: Correct. If the S&P 500 finishes the day down five points, that practically didn't even-
Sandy Block: It's nothing.
Ryan Ermey: ... move the needle. But if it finishes the day down 5%, that was a really bad day.
Sandy Block: That's a bad day.
Ryan Ermey: Really bad day.
Sandy Block: But that's a really good point because I can't tell you how often we'll turn on the news, and they will only talk about points.
Ryan Ermey: Well, because it's a bigger number.
Sandy Block: But it's a bigger number because it's a bigger market than it used to be.
Ryan Ermey: Right. It's a bigger number, so it sounds worse.
Sandy Block: I'm old enough to remember when 200 was a lot. Now, it's just-
Ryan Ermey: Yeah, whatever.
Sandy Block: ... Thursday or whatever.
Ryan Ermey: So, when we're talking about bear markets and corrections, if one of those aforementioned indexes drops by 10% from a recent high, not 10 points, 10%. That's considered a stock market correction. Now, we've had six of those since the beginning of the current bull market in 2009. All of these numbers aren't universally agreed upon. The definitions get squishy. These are all coming from our friend at Yardeni, but people have different numbers. They're all going to be pretty similar on this front. So, we've had six since the beginning of the current bull market, which started in 2009. If the market slides 20% from recent highs, that's when you're in a bear market.
Sandy Block: That's a bear, okay.
Ryan Ermey: We've had 11 of those since 1945, the most recent being from 2007 to 2009, and since World War II, on average, bear markets last an average of about 13 or 14 months, and the S&P 500 has fallen by an average of 33.5% during those periods. Now, I mean, not the end of the world if you consider the sort of grand scope of market history. The last thing to mention are recessions, which I think in the popular consciousness tend to get conflated with or confused with-
Sandy Block: A bear market, yeah.
Ryan Ermey: ... bear markets. Now, recessions typically come about six to nine months after the peak of a bull market. Now, obviously, that's always going to be a hindsight kind of thing, right?
Sandy Block: Yeah.
Ryan Ermey: You don't know when the peak is until it has peaked, until you're in a bear, and you'll look back and go, "Oh, that was the peak."
Sandy Block: Those were good days, good times.
Ryan Ermey: The recession is really... It's about a dip in the economy, the market. So, it's generally defined by two or more consecutive quarters of negative GDP growth, gross domestic product, and recessions come with a number of concerns, but perhaps the biggest is that consumer's slow spending. Businesses have to cut back and people lose their jobs. But these things are related, bear markets and recessions, but they're different, and knowing and understanding your terms hopefully can make it so you're not freaking out and can stay the course with your investment picture.
Sandy Block: Right because it sounds like corrections are pretty common, and we've had several of them, and we may be in one now, but bears are less frequent and last a lot longer.
Ryan Ermey: Yeah, I don't know where the... As of our air data, I'm not sure where we are in relation to the top of the S&P 500. But generally speaking, corrections and even bear markets, for someone with a long time horizon or opportunities to add to your holdings, if someone told you that... I think Downtown Josh Brown made a similar analogy to this one. I don't know if I'm wholesale lifting it or not off the top of my head. But if Target said, "We're having 20% off everything at our store," or if Walmart said, "We're having 10% off everything in our store," people would be-
Sandy Block: Thrilled.
Ryan Ermey: Yeah, beating down the doors to get in there. When the stock market says, "Hey, it's 10 to 20% off everything on the stock market," it should be an opportunity for you to add to your holdings or at least to stay with your investing plan, investing at regular intervals. It's a way to lower the average cost of your investment and hopefully boost your returns over time.
Sandy Block: Right. Just as with real bears, you should not panic with a bear market, correct?
Ryan Ermey: Exactly right. That's it for this episode of Your Money's Worth. For show notes and more great Kiplinger content on the topics we discussed on today's show, visit Kiplinger.com/links/podcasts. You can stay connected with us on Twitter, Facebook or by emailing us at firstname.lastname@example.org. If you like the show, please remember to rate, review and subscribe to Your Money's Worth wherever you get your podcasts. Thanks for listening.