When You Need Disaster Insurance
Hurricanes, earthquakes, and floods, oh my. If there is anything that spells doom and gloom for homeowners, it’s a natural disaster of calamitous proportions.
Though no one wants to think about catastrophes befalling home-sweet-home, homeowners need to know about their impact. And if you think your homeowners insurance will take care of all natural disasters, think again. It pays to know which disasters are covered and which are not.
Inclusions and Exclusions
Standard policies include a list of catastrophes (or "named perils") that are covered. Usually they include damage from fire, explosion, falling objects, windstorms, smoke, volcanic eruption, and damage from ice or snow, as well as possible others. Be sure to check what exactly is covered: Broad policies include damage to the house from the above perils, but not necessarily damage to the contents. And comprehensive policies include damage to the house and its contents.
However, most policies will not cover floods or earthquakes (i.e., "acts of God"), and if you live in a hurricane or tornado-prone area, there could be exclusions or limits on those particular perils. To obtain coverage for certain disasters, you might have to supplement your standard policy with separate -- and often expensive -- policies.
Also, damage in the event of war, nuclear accidents, landslides, mudslides, and sinkholes is generally excluded.
Even with disasters covered by insurance, there may be limitations to exactly what part of the property is covered. For example, damage to outbuildings and swimming pools could be excluded from the policy.
If your policy does not cover a particular disaster, your lender might require that you add it separately. For example, if you live in a flood plain, you might be required to get flood coverage. Depending on whether you are considered “high risk” because of your location, that coverage could be expensive.
One thing to be aware of is that insurance companies sometimes cancel policies if a geographic area suddenly seems high risk because of multiple disasters, such as in the hurricane-prone areas of Florida. Homeowners can generally find new policies, but with higher deductibles and premiums.
Disaster Insurance Details
Earthquakes: Most policies do not cover earthquake damage, but you can purchase earthquake insurance separately, or in some high-risk locations you can get it from state-run insurance pools. Typically, there is a 10-15% deductible, and comparatively high premiums that could be more than $2,000 annually. You might ask if damage caused by a tsunami as a result of an earthquake is included; it might not be.
Floods: Most policies do not cover floods. However, you might be able to get it via the National Flood Insurance Program if you live in an area that is covered by that federal program. Ask your agent if that is the case. Alternatively, there are private companies that sell flood insurance. Premiums will typically run anywhere from $500 to $1,000 per year, depending on location. Also, ask if the insurance includes damage caused by a tsunami. Note: Flood insurance goes into effect 30 days after it is purchased, so you can’t buy it during the flood!
Hurricanes or windstorms: Some policies cover this, and some exclude it. Ask your agent if it is included in your policy, or if state-run programs provide coverage. Deductibles typically run from 2% to 15%, depending on location.
Volcanoes: Most policies cover damage caused by volcanoes, including resulting fires. They cover lava flow damage, but not necessarily ash clean-up. However, as with all disaster insurance, if you live near a live volcano, you might pay more for your premium.
Wildfires: Fires are usually covered in a standard policy, but your agent might require certain things like a fire-resistant roof if you live near a forest, or in a wildfire-prone area.
If you live in a disaster area, chances are you can mitigate the cost of disaster insurance by bringing your house up to code, or adding preventive measures such as an earthquake-proof chimney, or storm shutters. Be sure to ask your agent which improvements would help.
Some homeowners rely on the government to step in when disaster strikes. However, the catastrophe has to be declared a major disaster in order for the Federal Emergency Management Agency to provide relief. Also, FEMA grants might not provide enough money for repairs or rebuilding.
The bottom line is to know what is in your policy and ask your agent about any other disasters you think you should be covered for.
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- Last edited March 14 2008
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