Is it time to add disaster insurance to your homeowners policy?
California experienced magnitude 6.4 and 7.1 earthquakes as recently as July 2019 and Hurricane Barry flooded parts of Louisiana that same month. So it’s no wonder those states’ residents would be thinking about disaster insurance. But what about other homeowners? At what point does it make sense to add earthquake, flooding or other extras to your homeowner’s policy? As with everything facing homeowners, there are plenty of considerations and lots of fine print to be aware of. Here are some of the topline issues with disaster insurance:
Plan on flood insurance
So easy to say “it won’t happen here,” and so difficult if it happens anyway. As Lisa Lindsay, executive director of the Private Risk Management Association advised in Forbes that everyone consider themselves as someone who lives in a flood zone. “All 50 states have experienced flood disasters, and everyone lives in a flood zone regardless of whether they live near a body of water,” she explained.
Does homeowner’s cover disasters?
You can’t really count on your basic homeowner’s policy to cover natural disasters. Flood damage, for example, is usually not covered, according to Allstate. You typical homeowners insurance policy will protect against what those in the insurance biz call “perils,” however. So wind damage that knocks down trees in your yard may be covered, depending on the reason the tree fell and what kind of damage it did.
But here’s the thing. If the wind knocks over a tree that’s been healthy, the policy may pay for the damage. If your ancient, towering tree was already rotting and poorly maintained, it won’t be covered. In addition, the wind damage is only covered as a “peril” if it caused structural damage requiring repairs to your home or other structures (like a She Shed). These structures are covered by your homeowner’s policy, but the yard and gardens aren’t. So expenses to replace the lawn being washed out in a flood or debris removal after wind damage won’t be covered by a homeowner’s policy.
In general, flood, earthquake and hurricane damage are not covered by homeowner’s insurance. That’s why mortgage companies in select areas require homeowners to obtain certain extra insurance–for flooding if you live in a flood plain, for example. But if you anticipate lots of uncovered disaster damage to your home or are just the type of person who likes to be extra-cautious, you may want to invest in disaster insurance policies without the urging of your loan company.
Usually, you can buy flood coverage from the federal program and other disaster policies vary by state. California has a law that says your existing homeowner’s insurance company must let you know about add-on earthquake policies at least every other year, for example.
The cost-benefit analysis
Because that’s how insurance people stay in business and make a profit, the price of certain types of insurance will be based on how likely future natural disasters are.
In California, for example, experts like Live Insurance News predict about a quarter-million policyholders will be facing earthquake insurance premium increases, in some cases double or triple their current rates. The increase is based on the geological evidence that researchers have used to predict future powerful earthquakes.
And that’s just for people who have already purchased earthquake insurance. The increased rate will become a baseline for new customers. This type of price-setting is something to be aware of in any areas where potential disasters may damage your home. If your area is potentially facing floods, quakes or hurricanes in upcoming years, try to stay ahead of the curve.
It’s too late to try for coverage as a storm is bearing down. “You won’t be able to go out and get a flood policy because there is a 30-day waiting period,” the PRWA’s Lindsay said. “Whenever there is a pending storm or hurricane, it dramatically changes the ability to change or get new insurance, which is why we recommend disaster preparedness planning.”
Decide based on deductibles
Disaster insurance policies can cost quite a bit. The average cost of a year’s worth of flood insurance, for example, is about $700 per year. But it really varies by state, so it’s important to know the typical price in your area. And keep your eye on the deductible. For earthquake insurance, for example, that might run 10 or 20 percent of your home’s value.
If your home costs $250,000 for example, you may be paying $25,000 out of pocket before you can even make a claim. Other details to be aware of on any disaster policy include how it works with the provisions of your homeowner’s policy, including such details as to whether you have to meet both deductibles.
And make sure to determine the top amount your policy will pay for the structure itself and for personal possessions. Remember, the policy is not going to cover your costs for living somewhere else while your house is being repaired, either.
And you must really read the fine print before making assumptions about what your disaster insurance will cover. Usually, fire isn’t covered by earthquake policies, for example. And a lot of the land damage that’s excluded under homeowner’s policies is also not covered by disaster insurance.
If you’re not going to opt for disaster insurance, you can still make big strides towards not losing your home or its value when floods or quakes occur. For one, develop an evacuation plan and pack “go” bags that include the stuff you’d need in your home or office if disaster strikes. There are guides for creating an emergency plan on Ready.gov. What you don’t want to do is forgo disaster insurance and simultaneously act like you have nothing to fear from potential weather incidents. This is no time to pretend like Mother Nature can’t touch you.