When major disasters cause millions of dollars in damage each year, many companies make a profit from the chaos.

Disaster relief companies often swoop in quickly to offer their services to distressed homeowners hoping to rebuild in the wake of natural disasters such as fires, floods, mudslides, tornadoes and earthquakes.

Many of these companies offer fair prices for their recovery services. From home repair contractors to mold removal services, these businesses often charge the same as they would any other time of the year. However, some companies take advantage of the situation and engage in price gouging. And when homeowners are left with few options to choose from, some may turn to disaster recovery companies that charge more than they should for their services.

Some states, such as North Carolina, are currently pursuing lawsuits against companies for unfair and predatory business practices in the wake of natural disasters.

For its part, the North Carolina Attorney General's Office is charging two companies for price gouging following Hurricane Florence in 2018. In this case, both companies are based outside of the state, and North Carolina's attorney general is accusing them not only of immorally targeting homeowners but flagrantly violating North Carolina business laws against such activities.

Homeowners across the country should be wary of companies offering recovery assistance after a major disaster. The Federal Emergency Management Agency (FEMA) additionally warns homeowners to be cautious of scams and fraud following disasters.

What can homeowners do and what should they look for?

Following a natural disaster, homeowners should be particularly cautious of any company approaching them with offers to provide disaster recovery assistance. Services that companies offer can run the gamut, including tree removal, trash and refuse removal, water damage repair, electrical work, HVAC, mold inspection and removal, roof repair, and more.

As natural disaster repair is a lucrative business for some companies, you should expect to receive a few calls following a disaster. Some may even knock on your door and offer services. Before this occurs, make sure you're prepared to thoroughly investigate any offers.

• Make a list of local businesses that offer the recovery services you may need. Contact neighbors and ask for recommendations on local and trustworthy businesses.
• Check the credentials of any individual or company that calls or approaches you to offer recovery services. This can include checking review sites like Angie's List, Yelp or the Better Business Bureau. If a company has little to no online presence, no ratings or bad reviews, it's best to avoid them.
• Get the price for any service in writing and signed by the company. Make sure the company offers a price quote with a range that fits in your budget or offers a guaranteed price that won't change.
• Do not pay for any service ahead of time. Only pay after the work is completed according to the written work agreement.
• Contact your homeowners insurance provider for recommended businesses. Your homeowners insurance provider may have past experience working with trustworthy local companies for disaster relief or other home repair services.

Check what your homeowners insurance will cover

Before agreeing to any service from any provider, verify that your homeowners insurance offers applicable coverage. Homeowners are often left surprised when their insurance does not cover flood damage or repairs for particular types of damage to the home, for example. And in the wake of California's devastating fires last year, many insurers pulled out, leaving homeowners stranded and without coverage.

Homeowners should not only proactively check what their current homeowners insurance policy provides, but also check with their insurance company immediately following a disaster. You should also ask your insurance provider how it handles and negotiates prices with contractors and what it will and won't cover if a contractor goes over the price estimates.

Some insurance providers may want to pick a contractor they have worked with in the past and they trust. Others may only cover a certain amount and leave the homeowner to cover any amount over the estimate.

Consider adding extended replacement coverage

One way to avoid excessive disaster recovery costs is to add extended replacement coverage to your homeowners insurance policy. Extended coverage will help with the additional costs associated with disaster repairs. Importantly, extended or guaranteed replacement cost will cover the entire cost to replace your home based on its previously assessed value, even if the cost to repair exceeds the home's value. Extended coverage can help you cover the high costs of recovery after a disaster.

Maxime Rieman is Product Manager at ValuePenguin. Educating and assisting shoppers about financial products has been Rieman's focus, which led her to joining ValuePenguin, a consumer research and advice company based in New York. Previously, she was product marketing director at CoverWallet and launched the personal insurance team at NerdWallet.