Illinois tornadoes: Why many could be underinsured

Telling statistics on homeowners insurance suggest many victims of last Thursday’s tornadoes could be significantly underinsured.

Insurance News

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Many victims of the tornadoes that devastated communities in northern Illinois last Thursday may find themselves without enough insurance money to rebuild or replace their homes.

Residents were allowed back into Fairdale, Illinois Saturday to assess damage and salvage what they could after eight tornadoes ripped through the area last week. The strongest, an EF-4 tornado, left two people dead and another 22 injured.

Damage is extensive, according to insurance professionals on the scene.

“In the Rochelle area we have homes that are just completely wiped off of their foundation, so the damage is pretty severe here. We have not been able to access the Fairdale area, but from the reports we’re seeing, it’s pretty extensive,” American Family insurance agent Jeff Jagla told Channel 3000. “It’s bad. Homes are leveled. Customers, I mean, they lose everything in their home…and we just want to help the customers.”

And while coverage for tornado damage is typically included in homeowners insurance policies, statistics from various insurance bodies suggest a few policyholders are significantly underinsured.

According to a 2008 study from Marshall & Swift, a full 64% of US homes are undervalued for insurance purposes. That number only increased as home values tanked an average 33% in the late 2000s and consumers began looking for ways to save money.
The result? People may not have enough money to rebuild their homes.

In fact, the same study suggests most policies leave homeowners with enough money to rebuild just 81% of homes.

Any renters in the area may be in even more trouble. Only 43% carry renter’s insurance, according to statistics from the Insurance Research Council.

Additional help may come from a presidential declaration of disaster, in which the uninsured or underinsured could receive federal aid. However, individual payments are capped at a little more than $30,000 and the average payment is likely to be much lower.

Tornadoes and severe thunderstorms were the number one cause of insured losses from natural catastrophes in the US in 2011, though typically tornadoes rank second behind hurricanes and tropical storms.

To mitigate any risk of underinsured homeowners, agents are urged to reevaluate their clients’ amount of coverage every two years, making note of major changes such as home remodeling or roof replacement.
 

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