If you have been a victim of a major weather event like Hurricane Sandy, a forest fire, a flood or an earthquake, you have a pretty good idea of why homeowners, landlords and renters may need catastrophe insurance. These events have occurred with alarming frequency in recent years.
What are the different kinds of catastrophe insurance and how do you decide which coverage you really need?
Catastrophes by the Numbers
- Insured disaster losses from 2002 to 2011 totaled between $7.2 and $70.6 billion each.
- From 1991 to 2010, hurricanes, tropical storms and related flooding caused about 44% of all catastrophe losses, with tornadoes making up 30% and winter storms about 7.5%.
- On average, about 6% of homeowners file catastrophe claims each year.
What Is a Catastrophe and What Does Insurance Cover?
According to the Insurance Information Institute, a catastrophe is an unusually severe natural or man-made disaster that results in potential insurance claims in excess of $25 million. While there are several different types of insurable catastrophes, not all require separate coverage. Some are included in homeowners, renters or auto policies, or can be added as a rider attached to an existing policy.
Disasters that can be covered by insurance include:
- Hurricanes/tropical storms: To get coverage for these storms, you typically need to get a separate policy or a rider on your homeowners insurance, especially in certain high-risk areas.
- Earthquakes: Earthquake insurance is separate coverage in high-risk areas along fault lines, generally in California, Alaska and Hawaii.
- Tornadoes/Windstorms: You may want windstorm insurance if you live in the Great Plains or the central states area known as Tornado Alley. This coverage is typically part of a homeowners policy.
- Hailstorms: Hail damage is usually covered in common homeowners or auto policies; coverage of hailstorm damage on a car can be handled through comprehensive coverage if it’s in force at the time of the storm.
- Fires and wildfires: Forest or brush fires are catastrophe events, but fires that burn down a house or destroy a car can be covered as part of homeowners or auto comprehensive policies. A fire intentionally set by the home or car owner is excluded from coverage.
- Floods: Flood insurance is a separate policy for homes, usually applied to those who live on flood plains. Flood damage can be part of a comprehensive policy on a vehicle.
- Tsunamis: Coverage for giant waves and related flooding are typically separate from your homeowners policy and only available in high-risk areas along coastlines or on islands like Hawaii.
- Acts of terrorism: Damage from these events may be included in your homeowners insurance, but some policies exclude these catastrophes and require separate coverage.
- Volcano eruptions: You would need to purchase this as a separate endoresment, though fire coverage in your home insurance can typically cover a portion of the loss.
It is important to know which types of disasters your homeowners or renters policy cover, and which require a separate policy. As an example, your home insurance may provide coverage against wind damage, but not for damage from flooding.
Disaster Preparedness for Your Area
It is a good idea to have an emergency plan for your family when the unexpected happens. Every household should have a fire escape plan. In case of a fire, know your family’s escape routes and meeting places. The same is true of major storms, since every geographic area in the US experiences tornadoes, windstorms and hurricanes. Know your storm shelter areas and evacuation plans.
Always have emergency supplies on hand, including flashlights, batteries, power generators, non-perishable food and emergency water. If you have advance warning, contact your insurance agent and out-of-town family members.
Do You Need Catastrophe Coverage?
The challenge with preparing for disaster is that it’s inherently unpredictable. Some catastrophic events are particularly difficult to predict. Others, such as tropical storms, occur with some frequency and can cause catastrophic losses. Some disasters tend to be cyclical.
Some areas in the US are considered to be in 100-year flood zones, while others may be at risk for flooding only every 200 years. Central California experienced a catastrophic flood in 1861 that created an inland sea for a period of six months, and scientists are concerned that such a megaflood could happen again.
Predicting exactly what disasters you may need to prepare for and deciding whether you need catastrophe insurance is complicated. You can start with the following questions:
- Do you live in an area that is at high risk for tornadoes?
- Are you in a coastal region at risk for tropical storms, flooding or tsunamis?
- Do you live on a flood plain and does your community participate in the National Flood Insurance Program?
- Is your home near a forest or dry desert brush?
- Do you live on or near any fault lines?
Knowing these facts about your home and geographic area is an important first step toward finding the right insurance coverage to protect your home. To get the guidance you need to make educated choices about coverage, work with a local member agent in the Trusted Choice network. Your independent agent can help you determine whether you need coverage above and beyond your standard homeowners, renters and auto policies.