Elmar Gubisch/Getty Images; Illustration by Issiah Davis/BankrateCredit

Extreme weather events are increasing in frequency and severity as unpredictable weather patterns expand across the globe. Due to these changes, 57 percent of Americans state that they have incurred costs due to an extreme weather event in the past 10 years. While extreme weather events can be concerning for drivers and homeowners, selecting appropriate auto and home insurance policies may help financially protect your investments.

The cost of extreme weather for homeowners

There have been 25 billion-dollar weather disasters in 2023, and the year isn’t over yet. Over the past decade, the U.S. has experienced over $1.1 trillion in damage from extreme weather, the most of any decade on record. With the United States Environmental Protection Agency (EPA) warning that weather patterns are shifting and severe weather will likely be more frequent and intense, there is a concern about the nationwide rising cost of home insurance.

The goal of home insurance is to protect the financial interest of the homeowner. Flooding from hurricanes and heavy rainfall is one of the most common catastrophic losses and typically requires a separate flood insurance policy for coverage. High winds from severe storms and damage from wildfires are usually covered by standard home insurance and account for most of the damage over the past decade.

Using insurance as a form of disaster assistance helps spread most of the financial risk from the homeowner to the insurance company. In turn, insurance providers used reinsurance companies to share the burden of risk and avoid insolvency if a catastrophic event causes a high volume of claims. However, since the costs and frequency of natural disasters have risen, so have the premium insurance providers pay the reinsurers — these rate hikes are then passed down to the homeowner.

This situation puts both insurers and homeowners in a financial conundrum. Homeowners may not be able to continue to pay for the increased cost of home insurance, and insurance companies may not be able or willing to absorb increased rates from reinsurers along with the inflated cost of building materials and labor.

The cost of extreme weather on car owners

The average cost of car insurance is also increasing across the country due to more frequent extreme weather claims, rising reinsurance costs and inflation, among other factors. Bankrate’s 2023 True Cost of Auto Insurance report found that the average percent of income U.S. drivers spend on car insurance increased from 2.57 percent in 2022 to 2.93 percent in 2023. Looking at damage from extreme weather, comprehensive insurance covers weather-related damage such as:

• Fire/wildfires
• Lighting strikes
• Flooding
• Wind/hail damage

According to the U.S. Department of Labor, rain and flooding create wet driving conditions, which account for 75 percent of vehicle crashes. High winds, snow, sleet and fog also impact the ability of a driver to maintain control of their vehicle. While comprehensive claims do not have fault assigned, car crashes occurring during challenging weather are still handled like any other accident, where the at-fault driver typically incurs surcharges when their policy renews.

Drivers living in areas that experience repeated catastrophic losses, like Florida and California, may see their insurance premiums increase due to the increased risk of future losses. Although collision and comprehensive coverage are optional, if you opt out of these coverage types to save on your premium, you’ll be on the hook for any at-fault or comprehensive losses that result in physical damage to your vehicle.

Costs incurred due to extreme weather

Extreme weather does more than impact the cost of auto and home insurance, severe weather affects your personal finances on a daily basis. According to Bankrate data, 43 percent of Americans only have $1,000 available for emergency expenses. Surprise costs from high energy bills or evacuation expenses can easily put many people in challenging financial situations.

Future impact of extreme weather on personal financial health

Reports from The California Institute of Technology show that extreme weather events will continue in frequency and intensity, which is problematic for insurers and homeowners. Insurance premiums are based on historical data and future risk. With the likelihood of more catastrophic losses in the near future, several insurance companies are increasing premiums, changing coverage options and restricting or eliminating policy coverage in certain states and locations.

Many homeowners in Florida and Louisiana already rely on state-run insurance due to the ongoing home insurance crisis. With more insurance companies leaving or limiting coverage, more homeowners in other states may need to do the same or purchase standalone wildfire or wind insurance, along with their standard home insurance. For homeowners in areas prone to flooding, having four different insurance policies to financially protect their home from extreme weather may become a real possibility.

How to prepare your home and car for extreme weather

You can’t stop extreme weather from happening, but you may be able to mitigate your financial loss and limit damage by preparing your car and home for a natural disaster.

Preparing your home for extreme weather

Protecting your home from natural disasters starts with formulating a plan. The best method to prepare your home depends on the pending peril, whether you own or rent, and your budget. Below are some suggestions to mitigate loss from common extreme weather events:

• Flooding: Sealing foundation cracks, clearing your gutters and floor drains and using sandbags to divert water from your home can help you minimize flood-related losses.
• Wind/hail damage: Storing or anchoring patio furniture and other outdoor equipment can prevent it from becoming a projectile during high winds. Wind-resistant roofing and hurricane shutters are permanent options that can drastically reduce wind damage and may make your home eligible for a wind mitigation insurance discount.
• Extreme heat or cold: Whether you rent or own, adding weatherstripping to doors and windows is a cheap way to keep the temperature in your home stable and reduce the cost of utility bills.
• Wildfire: Clearing defensible space around your home and eliminating flammable debris can help keep flames away from your home’s structure. Clearly marking water sources and putting hoses at all of your outdoor spigots can help firefighters defend your property from wildfire.

Preparing your car for extreme weather

Protecting your car from a natural disaster can be easier than your home since you can take it with you. However, if you own more than one vehicle, it is good to know what steps to take to limit the risk of damage.

• Flooding: If time permits, remove any essential items and documents from your vehicle. Make sure all windows, doors and the sunroof are shut tight, and park it on high ground.
• Wind: A garage is often the safest place to store your car to prevent wind damage. Parking your vehicle against your home or in a public parking garage are potential solutions for those without their own garage. Do not leave your car under trees or powerlines.
• Extreme heat or cold: Basic car maintenance is the best defense against extreme cold or hot temperatures. Checking fluids and tire pressure, inspecting the battery and replacing windshield wiper blades can help reduce early wear and tear that extreme temperatures can cause.
• Wildfire: Having a HEPA cabin air filter can help you maintain the air quality in your vehicle while driving away from a fire. If you’re leaving a vehicle behind, park it away from flammable brush.

Frequently asked questions

• • Can you add endorsements to your policy to account for extreme weather events?

    Yes. Working with an experienced insurance agent can help you choose the correct coverage for extreme weather events in your region. For homeowners, endorsements or standalone policies are often available for excluded perils, such as flooding and earthquakes. For auto owners, purchasing full coverage insurance provides financial protection for most perils, but you may be able to add endorsements, like rental car insurance or new car replacement, for more robust coverage if your car is damaged in an extreme weather event.

  • How does home insurance help when you are impacted by a natural disaster?

    If your property is damaged by a natural disaster, home insurance may help mitigate the financial loss and help you replace personal property or repair your home. Aside from dwelling coverage, home insurance also has loss of use coverage. This coverage can reimburse you for additional costs incurred while living at another location if your home is uninhabitable during repairs from a covered claim. This could include hotel costs or animal boarding. Some lesser-known benefits of home insurance include reimbursement for food spoilage and for supplies needed to prevent your home from experiencing further damage, such as tarps for your roof or wood to board up your windows.