Are You Covered?
WHAT YOU NEED TO KNOW ABOUT HOMEOWNER’S AND DISASTER INSURANCE
by Bridget Rees

Whether you live in Newport Beach, New Orleans, or New York, you and your home are not immune to a natural disaster.

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It may be an earthquake, tornado, flood, mudslide, hurricane, wildfire, or some variation, but regardless of the variety, natural disasters are abundant, and that means you and your home need to be protected.

Know Your Policy—Know the Facts

So what do you need to know about homeowner’s insurance to help you be more prepared for an emergency or disaster? The most important thing is to have a policy.

The next step is to become an authority on what you’re already paying for. Coverage varies, so read your policy carefully and talk with your agent if you have questions—don’t wait until you are trying to file a claim after a disaster has hit.

Most homeowner’s policies do not cover damage resulting from floods or earthquakes (and depending on where you live, things like hurricanes, hail storms, and tornadoes may also be excluded). Thirty-nine states have a medium to high earthquake potential, and 90 percent of the U.S. is considered seismically active. As for flooding, it is the most common natural disaster in the U.S. FEMA estimates 10 million U.S. households are located in high flood-risk areas, and between 20 and 25 percent of all flood insurance claims are paid to people living outside these high-risk areas.

So, should you buy flood and/or earthquake insurance? You’ve got to weigh what the potential loss would be and what the likelihood is where you live. Every homeowner should look into it and decide what is best for them.

Why Some Say “No thanks.”

If floods and earthquakes are so common (and so expensive) that most homeowner’s policies won’t touch them, it would seem coverage would be a priority simply because of the statistical likelihood. Not so, and the main reason is cost. Earthquake insurance can range from $200 to $3,000 (or more) a year, and according to www.floodsmart.gov, an average flood policy is $500 a year. Particularly for earthquake insurance, deductibles can be outrageous: 10 to 20 percent. Federal flood insurance is more reasonable at $500 to $1000. Another reason many skip the supplemental insurance is that they believe the government will step in, providing home and business owners with grants.

Why Others Say “Sign me up.”

The government (FEMA) can only provide help if the area is declared a disaster, and sometimes the damage is not considered significant or widespread enough for such a declaration (most floods are not declared disasters). And if FEMA does come to the rescue, its help might not be enough. Keep in mind that repair costs will skyrocket because workers and contractors will be in high demand. FEMA’s resources may be limited, so when money allotted for a specific disaster is gone, it’s gone.

Government help doesn’t always come in the form of a grant, but rather a loan that must be repaid with interest. For a $50,000 loan at 4 percent interest, your monthly payment would be around $240 a month ($2,880 a year) for 30 years. Compare that to a $100,000 flood insurance premium, which is about $400 a year ($33 a month).

Earthquake Insurance Basics

Earthquake insurance is considered catastrophic insurance, meaning that unlike standard homeowner’s insurance, it covers only major losses. It also means deductibles are tremendous—generally from 10 to 20 percent of total loss coverage, as mentioned previously. This means that if rebuilding your house costs $300,000 and you have a 15 percent deductible, $45,000 will have to come from you before you receive anything else. In most cases, the policy only covers damages that exceed the deductible. Generally older homes and brick homes are more expensive than newer homes and wood homes, which tend to withstand the seismic stresses better.

Even in infamously earthquake-prone California, only about 12 percent of homeowners have earthquake insurance, according to the California Earthquake Authority (CEA), down from 30 percent in 1996 when the state legislature created the CEA (a state-sponsored private-public partnership that provides earthquake insurance to California residents).

Unfortunately, most are coming to the conclusion that earthquake policies cost too much and cover too little. Clearly there is a gap between what homeowners need and what they are getting when it comes to the specific problem of earthquake coverage. But regardless of where you live, you probably have at least some risk of earthquake damage and should plan accordingly.

What is Federal Flood Insurance?

Congress established the National Flood Insurance Program (NFIP) with two goals in mind: protecting communities through floodplain management, and providing flood insurance. Only communities that are NFIP-qualified can receive coverage; if a flood strikes and the community is not NFIP-qualified, flood insurance will not be available to that community. And if the president declares the flooding a national disaster, federal assistance will not be available to insurable buildings. Visit www.fema.gov/fema/csb.shtm to find out if your community NFIP-qualified. If it isn’t, and you believe it should be, you can petition your local government.

What constitutes a flood?
Floodwaters must cover at least two acres, or affect at least two properties. Floods may result from heavy rains, costal surge, snowmelt, blocked drainage systems, levee or dam failure, or other reasons.

How do I get flood insurance?
Private insurers, backed by the federal government, sell flood insurance (there are over 85 companies). Often the same agent that sold you your homeowner’s insurance can also help you in purchasing flood insurance. Different types of policies are available based on location. If you live in a low- or moderate-risk zone, premiums for both the property and the contents inside start as low as $112, including coverage for your property’s contents (however, depending on where you live, flood premiums can exceed $1,000). Flood insurance covers up to $250,000 for a single-family home and up to $100,000 for its contents. Visit www.floodsmart.gov for more information.

A Standard Homeowner’s Policy

If cost and relative unlikelihood are prompting you to stick with just a standard homeowner’s policy (not adding supplemental earthquake and/or flood insurance), know that your decision to have at least a standard homeowner’s policy is vital and could rescue your family from a variety of disasters.

Most standard policies will cover the cost to rebuild your home in the event of fire, hurricane, hail, lightning, ice or snow damage, or other disasters listed in your policy. It will also protect the personal belongings within your home (and to some degree outside structures and belongings), and liability, which covers you against lawsuits should another person be harmed or property damage occur on your property (so, if your son, daughter, or even dog knocks over your neighbor’s China cabinet, you are protected). Most policies will also cover living expenses if you cannot live in your home while repairs are being made (such as the cost of a hotel room).

Most property owners do have a policy, but need to know if they have enough insurance. The best way is to have your home appraised and also to do a home inventory. You can find several inventory checklists online that help you account for everything from furniture to CDs to linens and absolutely everything in between (do a “Homeowner’s Insurance Inventory” online search to find a checklist).

And if you’re not a property owner, you should keep in mind that you still need to be protected. Remember that natural disasters and lawsuits can be just as devastating, if not more so, for renters. If a natural disaster hits and destroys your belongings, or if, for example, someone slips and falls on your child’s toy outside your apartment, property or liability coverage could be a vital lifeline for your family’s financial survival.

For most people, their home is their largest investment, so protecting it just makes sense. Yes, it costs money, and deciding how much coverage to have is an individual decision. For many, though, it would only take one disaster to realize that some degree of preparation and investment is worth the current inconvenience many times over.

LDS Living, July/August 2008, 74-76

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Flood and Earthquake insurance a waste? Posted by Heather from Bountiful We've always felt that paying for expensive flood and earthquake insurance is a waste, it seems that every time you watch a disaster occur (a prime example is the New Orleans flooding) the next thing you hear is about how insurance isn't paying on policies because there are too many claims and "they can't afford it"... so they pay pennies on the dollar... Why pay for insurance that won't be honored when you really need it??? Anyone had a different experience?