Why You May Need Natural Disaster Insurance

by Khaleef Crumbley on September 28, 2011

in Insurance

Natural Disaster Insurance

Although most homeowners have a basic homeowners insurance policy, or even home contents insurance, many do not have natural disaster insurance. However, with the recent destruction from Hurricane Irene and Hurricane Lee, the importance of being fully covered has been made clear.

Why You Need Natural Disaster Insurance

If you only have a standard homeowners policy, you’re not covered for damage to your home or possessions in the event of an earthquake. This includes the damage occurring from the shaking and cracking associated with earthquakes and aftershocks. You would have to take out a separate earthquake insurance policy in order to be covered.

According to the Insurance Information Institute, many standard homeowners policies will cover you for direct losses due to fire, lightning, tornadoes, wind storms, hail, explosions, smoke, vandalism and theft. However, the limits may not be enough to fully cover all of your damages.

Many policies will also limit the amount of coverage due to damage from hurricanes and other windstorms as well. It is best to contact them ahead of time and find out exactly what your coverage entails. Then make sure that you follow a hurricane preparedness guide in order to minimize damage.

Flood damage is not included in your homeowners policy, so you will have to take out natural disaster insurance if you live in a flood-prone area. Flood insurance is actually provided by the federal government, and administered by the Federal Insurance Administration. Flood insurance also covers the damage that you incur as a result of a mudslide.

Another thing to consider is having the proper motor insurance. Many times we only focus on our homes, but many people have their cars destroyed during natural disasters; so it makes sense to ensure that you have the proper coverage ahead of time.

How Much Natural Disaster Insurance Do I Need

Like most types of coverage, if your home is destroyed, your natural disaster insurance policy will pay you for the “actual cash value” of your home (the replacement cost minus depreciation). The key is to make sure that your coverage amount will be enough for you to rebuild.

It would be wise to do some research on building costs before you choose your amount. One thing to keep in mind is that costs may be inflated (you may even have to deal with price gouging) because of the increased demand for contractors and building materials after a natural disaster!

Also, be sure not to use the purchase price of your house as a basis for your calculation. The market price of your house includes the value of the land on which the house is situated. Most likely, the land will still be there after a disaster, so it would be a waste of money to include its value in your coverage calculation.

What About An “Acts Of God” Insurance Policy?

The term “acts of God” is not specifically mentioned in homeowners policies, so it can mean different things to different people. However, it is usually used to describe natural disasters (such as tornadoes, earthquakes, and hurricanes) as opposed to man-made destruction such as theft and negligence.

Therefore, you will not be able to find a specific “acts of God” insurance policy, but you will be able to cover yourself by purchasing natural disaster insurance. While you’re checking into all of this coverage, be sure to get a few life quotes as well. The most tragic part of any disaster is the loss of life – especially when a family is left behind with nothing.

photo by U.S. Fish and Wildlife Service – Northeast Region

© 2011, Khaleef Crumbley. All rights reserved.

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{ 2 comments… read them below or add one }

1 Marie at FamilyMoneyValues

It pays to know what your insurance covers. I need to add this to my annual financial healthcheck, it’s so easy just to think that you are covered.


2 Eric J. Nisall

This is such important advice. Some places are required by law to have certain coverages like windstorm or flood insurance, but you never know what can happen. I think the best thing to do is to do research and ask around before moving into an area to discover what kind of events had occurred in the past. Down here in South Florida, I laugh when people run out to the stores to stock up on supplies the day before a hurricane. It makes too much sense to make sure you have all of your bases covered in case of any kind of naturally occurring event–blizzard, hurricane, earthquake.

Failing to prepare is preparing to fail!


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