Insurance and Natural Disasters: What Every Homeowner Should Know

Natural disasters, such as floods and wildfires, hurricanes, and earthquakes are no longer rare - they are occurring more frequently and with more intensity almost everywhere on the planet. For homeowners, the likelihood of at least some damage to your property potential for financial loss, has never been higher. There is not a lot we can do to prevent natural disasters from happening but we can prepare for them.

Preparing means understanding your insurance, and how to best use it. Many homeowners first learn about their policies after a disaster has wreaked havoc on their lives, and while most homeowners assume some standard level of disaster protection exists within their homeowners policy, this is often not the case. In many ways, the difference between a successful recovery from a disaster and overwhelming expenses will come down to knowing what is covered, how to improve your coverage, and whether you purchased a homeowners policy that protects against disasters.

The Importance of Natural Disaster Insurance

Recovering from a natural disaster is not only an emotional undertaking, but can also be financially draining. The cost to repair or even rebuild a home can reach tens of thousands - or even hundreds of thousands - of dollars. For homeowners with no or insufficient insurance coverage, they are faced with the expenses without payment assistance, making them responsible for the costs out of pocket.

Insurance coverage offers a cushion to help do the things that confuse and frustrate you, such as making repairs, finding and acquiring temporary housing, and replacing the things that were lost. For example, if you are the homeowner of a property in a flood zone who did not purchase flood insurance, you would inevitably incur many thousands of dollars of debt to affordably repair your home after a flood. A policyholder with the proper insurance language can recover faster and with much less financial burden.

Aside from the financial aspect, insurance provides peace of mind. Knowing that your home, your family and your belongings are all covered gives you comfort while you are moving forward... instead of staying up at night stressing and wondering how you are going to pay for it.

Different Types of Natural Disaster Coverage

Not all of the disasters may be covered by your standard homeowners insurance policy. To ensure you are fully covered, it's worth knowing the types of coverage available:

• Homeowners Insurance: Basic policies typically cover fire, wind damage, lightning and storms (to some level), but the types of risks a basic policy does not cover can include the bigger disasters such as floods and earthquakes.
• Flood Coverage: Floods are one of the most frequent natural disasters and mainly because most standard policies do not cover it as properly the specialized and insurance market does it.If you live by a flood plain, you may want to be a little more aware of the need of having a separate flood coverage policy through the National Flood Insurance Program (NFIP) or a private carrier.
• Flood and Earthquake Coverage: Earthquake damage is never included in a standard homeowners policy. If you live in one of the high-risk regions of the country you may need to purchase separate earthquake coverage.
• Wildfire or Storm Coverage: For wildfires, hurricanes, or tornadoes (which all have some common dependency given the region you might live in), you may have to purchase riders, or additional/special coverage since standard homeowners policies do not cover disasters that are event based and may occur at the same time.

Understanding what risks are covered by your policy and which ones may necessitate purchasing a separate section of coverage as a stand-alone policy is the first step in avoiding a gap in disaster coverage.

To know more about which disasters pose the biggest risks, check out our blog “How the Government Deals with Natural Disasters.”

Widespread Insurance Misunderstandings

Many homeowners think their insurance will cover any loss due to disaster. However, this is one of the many mistakes homeowners make.

• "My homeowners insurance covers everything." While this seems straightforward, standard policies often exclude certain things like floods and earthquakes; and sometimes things like wind or hail damage is excluded as well depending on the region.
• Replacement cost vs. actual cash value. Some policies only cover the actual cash value of your belongings after depreciation, not what it will cost to replace them with new, similar items. This could mean less money than you anticipated.
• Not accounting for coverage gaps. Homeowners frequently gloss over the exclusions and limits, forgetting that the coverage may cap out at a certain limit on personal property like jewelry or electronics.

Assessing Your Policy

Many individuals simply skim over their insurance policy and incorrectly assume they are fully protected, but to be certain you need evaluate the specifics of your documents:

• Read the fine print: Familiarize yourself with the policy documents so you understand what is covered and not. Don't assume.
• Review exclusions: Was there a mention of certain events or incidents that your insurer will not cover?
• Ask the right questions: Be sure to speak to your insurance agent and ask about: limits on coverage, deductible and whether they recommend/require you to purchase a different policy.
• Review regularly: if you remodel your home or purchase high priced belongings your policy should reflect the new value.

When you assess your policy you'll become familiar with your position and whether it is adequate in the event of natural disaster.

You can also explore our blog “Why Texas Keeps Ignoring Disaster Preparedness - Despite Facing the Worst” for practical tips on staying ready beyond just insurance.

Conclusion

Natural disasters are abrupt incidents that may create long-lasting repercussions - which can be considerable, damaging and life altering as a natural disaster is financially and (potentially) emotionally catastrophic. Homeowners can best prepare by making sure their insurance and the policies reflect the risk should the event of a natural disaster occur. Standard coverage usually has shortfalls and exclusions, so it is novel to what is specifically included/excluded and to what extent its subject to - such as flood insurance and earthquake insurance as examples.

Homeowners should regularly review their policies and update their coverage to avoid being in a position where they are surprised by an incident. When combined with good insurance coverage, homeowners can create a plan of action - building an emergency fund to assist with costs, securing your home - and set themselves up to recover from a natural disaster far more easily.