Understanding post disaster government grants and loans

By Lynne McChristian April 10, 2012

Here’s a question from a poll conducted in 2011 by the Insurance Information Institute: Will the government pay for damage to your home that is not covered in your homeowners policy? Percentage of people who said no: 61%. That’s six percentage points more than the 55 percent who said no in 2010, which means people increasingly understand that the role of the federal government is primarily disaster preparedness and response. However, five percent of the people we surveyed think the government will pay to fill gaps in their insurance coverage – and 34 percent said they did not know whether or not the government would pay, which makes me think they HOPE the answer to the survey question is yes.  All those surveyed had a home insurance policy.

So, what should that 39 percent of Americans know about the way government aid works after a disaster? They should know there are federal loans and federal grants; the loans are paid back with interest and can provide for a full recovery, while the disaster assistance grants from the Federal Emergency Management Agency are limited and designed to make a household safe and not intended to restore damaged property.

At a recent National Hurricane Conference insurance workshop, a speaker from the Small Business Administration (SBA) busted a misconception I had on that organization. It’s more than its name implies, and many people do not know that the SBA offers disaster loans to homeowners and renters, in addition to businesses. SBA home and personal property loans cover uninsured and underinsured losses, which could include personal contents, landscaping, building code upgrades, and insurance deductibles. Interestingly, if a disaster loan is approved, a homeowner could also be eligible for additional funds to cover the cost of improvements that will protect the property against future damage. That means if you had to rebuild your home after a disaster, you could rebuild it better. The SBA has a Disaster Loan Fact Sheet to explain further. There are credit requirements that apply, and loan terms to negotiate.

There were a record-breaking 99 federally-declared disasters in 2011, and 11 so far this year. The SBA is offering loans to many of those people who were impacted, and it is a hand up, not a handout.