Suze Orman Warns Homeowners: 'Cash Value' Insurance Won't Cover Your Losses – Here's What You Need Before Disaster Strikes

Financial expert Suze Orman recently highlighted the importance of keeping your insurance coverage up to date—especially with natural disasters becoming more frequent. Even if your home or car is damaged, you still need to keep making your insurance payments. 

Otherwise, you risk being left without coverage when you need it most. "Your policy must be ‘in force' when you are making claims," Orman warns. This is especially crucial for homeowners with mortgages, since lenders require active insurance. 

The Hidden Gaps in Your Insurance Policy 

Not all insurance policies offer the same level of protection, and the details in the fine print can make a big difference. 

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Homeowners insurance typically includes four types of coverage: Coverage A (Dwelling Coverage), Coverage B (Other Structures), Coverage C (Personal Property), and Coverage D (Loss of Use). The most important is Dwelling Coverage, which determines how much your insurer will pay if your home is damaged or destroyed. 

Here's where things get tricky. Many homeowners have Actual Cash Value coverage, which only reimburses the depreciated value of a home or belongings. That means if your roof is 15 years old, you're only getting paid for what it's worth today—not what it would cost to install a new one. 

"That's not good enough as it won't be enough to cover the current (think about inflation) cost to replace things," Orman said. This gap is becoming more of a problem as repair costs rise. According to the U.S. Treasury Department, homeowners insurance premiums climbed an average of 8.7% per year between 2018 and 2022—outpacing inflation. 

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A stronger option is Replacement Cost Value coverage, which reimburses homeowners based on today's prices. This ensures you can actually afford to rebuild or replace damaged property. Orman advised checking policy limits every year since construction costs continue to climb. 

"There's typically a dollar limit to the total value of Replacement Cost coverage," she said. Some homeowners may even qualify for Extended Replacement Cost coverage, which pays 10% to 25% above the policy limit. This is especially valuable when natural disasters drive up the cost of labor and materials. 

Auto insurance can have similar coverage gaps. Many drivers drop comprehensive coverage to save money, not realizing that if their car is damaged in a storm or stolen, they won't get a payout. 

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As reported by the Bankrate, the average cost of full coverage car insurance climbed to $2,638 this year, an increase of 12% from 2024 due to rising repair costs and an increase in claim. Per the National Association of Insurance Commissioners, around 80% of insured drivers carry comprehensive coverage, recognizing the value of protecting against theft, weather damage, and non-collision incidents. 

Insurance isn't something you can set and forget. With costs rising, it's worth reviewing your policy every year to make sure you're fully covered. 

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