Do You Have The Right Natural Disaster Insurance?

by Kevin Mercadante

The aftermath of Hurricane Sandy is causing a lot of people to dust off their homeowners insurance policies to make sure they have the right natural disaster insurance. It’s great to save money on homeowners insurance but when you have damage you want to make sure the coverage will be there. When you look at your homeowners insurance policy you might see a long and very impressive list of events that are covered. The problem however is not in what they do cover, but rather in what they don’t.

Unfortunately, many people don’t find the answer to that question until disaster strikes and they find out the hard way.

What homeowners insurance policies do cover

Homeowners insurance policies do cover a wide range of threats. They can cover fire damage, theft, a tree falling on your roof, wind damage or even a leaky pipe blowing up. There are also less well-known threats that can be covered, including contents of the safe deposit box or even your portion of a loss resulting from the theft of one of your credit cards. Some policies also cover personal liability as well.

For most of the threats that we commonly think about in connection with damage to a home, most homeowners insurance policies offer adequate protection. Storm damage, is a typical threat, and will be fully covered in most instances.

The problem lies mainly in those disasters that we might think are covered but aren’t.

What homeowners insurance policies don’t cover

We can probably summarize this entire section by saying if a threat is not specifically listed in your homeowners insurance policy, then it is not covered.

If, for example, your policy doesn’t specifically indicate that your home will be covered in the event of vehicle related damage – like a random driver crashing his car into your living room – the insurance company probably will not pay a claim in the event it were to happen.

Most of us assume that if we have a homeowners insurance policy then “we’re covered” regardless of the threat. That can be an especially dangerous assumption in the event of two very significant disasters which seem to be more common today than ever.

The Big Two – Floods and Earthquakes

Many people are unaware that their homeowners insurance policies don’t cover floods and earthquakes. This ignorance is often due to the fact that they live in areas that are not particularly prone to either threat. But the fact becomes painfully clear when one does hit.

This is particularly true of flooding. If you have a mortgage on your home, the mortgage lender will require you to have flood insurance if your property is located in a known flood zone. This will be required even if the property itself has never experienced flood damage. As long as the property is located in a flood zone, a separate flood insurance policy will be required.

The far bigger problem is when you aren’t in a flood zone, and aren’t require to have flood insurance. Homes can and do experience substantial flood damage in areas that are not determined to be flood prone. If you weren’t required to have flood insurance when you took your mortgage, you will be completely uncovered in the event of flood damage.

The biggest problem with earthquakes and floods is a high likelihood of total destruction of your property. If you don’t have specific coverage for either disaster your homeowners insurance coverage will not be much help.

Getting the coverage you need

With Hurricane Sandy still fresh in our minds, now is the time to contemplate the unthinkable – the possibility that your home could be significantly damaged or completely destroyed in either a flood or an earthquake, even though you are not located in an area that’s known to face either threat. Flood insurance in particular is worth considering because it is inexpensive in areas that are not prone to flooding. Just be careful. Some insurance companies will gladly accept your premiums but the play games with flood insurance when it comes to paying claims.

Flood insurance premiums run the gamut. It could be $200 per year to ensure a modest home located outside a flood zone. But it can cost several thousand dollars per year if your home is located in a coastal area that is prone to coastal storms and destructive flooding.

Earthquake insurance is much the same. If you are not located in an area that experiences earthquakes the premiums are very inexpensive. If your property is located in an earthquake prone region, premiums can vary widely. They will be determined by the proximity of your home to a fault line as well as the basic structure of your home (some homes are built to better withstand an earthquake). Like flood insurance, earthquake insurance can cost several thousand dollars per year if you’re in a high risk situation.

If you have any idea that your property could face the risk of either an earthquake or severe flooding, now is the time to take out a policy to protect your property. Once a disaster strikes, it will be too late.


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{ 2 comments… read them below or add one }

Daisy@Everything Finance January 28, 2013 at 10:34 PM

We opted “in” for the extra insurance, like earthquake. Particularly in the area we live in, it’s a big threat and we’re not prepared to have to shell out for the damage if it does happen. It was worth it for us.


Kevin@OutOfYourRut January 29, 2013 at 9:03 AM

Hi Daisy–As the saying goes, better safe than sorry. A lot of people opt out of such coverage to save on premiums, but just one disaster can make the premiums look like pocket change. You’re doing the right thing.


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