Disaster Insurance – What You May Not Know

Hurricane, earthquakes and other natural disasters have been around since the beginning of time. The spurt in the volume and intensity of these disasters appear to be increasing over the years. While part of this may be due to climate change, the expanding population of cities, exponential growth of infrastructure and increasing value of homes are among the major reasons for these massive financial losses. These disasters and the publicity surrounding them have caused homeowners to re-look at their insurance coverage. While the overall policy may appear to offer adequate protection, there are factors that could limit the resources available to repair or rebuild your home.

Issues to Consider

         ·         Your standard disaster policy may not be enough. A typical homeowners’ policy will not normally cover damage from floods or rising water. Some policies pay for damage caused by wind or wind-driven rain but others do not. Some policies issued in areas that are prone to hurricanes include a specific “hurricane deductible” where the policyholder has to pay a large amount from his pocket before the coverage kicks in. For example, if a home valued at $200,000 is destroyed by a fire, the standard deductible is typically from $500 to $1,000. However, under the same policy, if the destruction it is caused by a hurricane, the deductible could be 5% or around $10,000. This is a huge difference. 

          ·         Because of this, you may have to dip into your savings. In the case of earthquake damage, you may need to pay as muchas 15% from your pocket. Without enough cash available, you could be forced to sell off assets to cover the cost of repairs. Ideally, you should have savings set aside for such a contingency or a Home Equity Line of Credit (HELOC) set up to cover you. The HELOC should be set up in advance because no lender will extend credit on a house that has already been damaged.

       ·         Since the standard homeowners insurance does not cover flood damage or loss, taking out flood insurance may be a good idea, depending on the flood risk in your zone. A qualified insurance agent will be able to help you evaluate the risk and find the right coverage. Note that there is awaiting period for this coverage to kick in – it is usually 30 days. This is to discourage people taking out a policy only when a flood threat is imminent. Another factor to keep in mind is that coverage offered by the federal government’s National Flood Insurance Program is limited to $250,000 for property and $100,000 for contents. Additional coverage can be bought from private insurers.

Check Your Coverage

The complexities of insurance coverage mean that it is easy to make mistakes when taking out a policy or misunderstanding the coverage that exists. Talk to a reputed insurance broker about your existing disaster coverage to know if there is a gap that needs to be covered. He will be able to help you stay completely protected.