Disaster Insurance

What is Disaster Insurance?

Disaster insurance is a type of property insurance. Disaster cover will cover you from natural and man-made damage to your property. Disaster cover can cover a home or business for damage due to hurricanes, earthquakes, floods and other natural disasters. The important word in that sentence is "can" - many people are not covered for disasters and some don't even realize it.

Americans increasingly think that disaster insurances covers for them for too little and at too high a cost. They are looking at options - but are there any?

Do You Have Disaster Insurance?

The first step is to evaluate exactly what, if anything, your current property insurance covers your for. The differences in cover will vary dramatically depending on which state you live in, and your exact location. That's because the insurer's risk also varies dramatically. For example if you live outside of Florida you possibly already have cover for hurricane and wind damage.

Do You Need Disaster Insurance?

This is a more difficult question. Flood Insurance is a specialist insurance which is offered thru FEMA which will pay for water damage. Flood insurance covers up to set limits for both a family home and your house's contents. If you have a mortgage than Federal regulations require that you take out flood insurance.

Earthquake insurance is different. Its not a requirement and most home owner's policies do not cover it. Obviously the risk of earthquake is higher in some states than others: it will be now surprise to learn that California earthquake insurance is some of the most expensive in America. However its not just California that has earthquakes: Oregon, Nevada and Arizona also have a high risk of quakes. The premium is still high - and the Californian earthquake insurance system has a 10% deductible. Be very clear what is actually covered by earthquake insurance. You may discover that items such as swimming pools, spas and detached garages are not covered, landscapin,g is also frequently excluded.

Windstorm and Hurricane insurance risks and costs also vary widely by state and even sometimes county. Some states including the high risk states of Florida, Mississippi and Texas offer cover for people who can't get private cover. Some coastal areas including New York and Georgia offer wind and hail insurance via FAIR (Fair Access to Insurance Requirement) plans.

Many people either go uninsured or under-insured for natural disasters. Some of the reasons that people choose to be deliberately uninsured include:

• disaster insurance is too expensive. The annual premium can be substantial, into the thousands of dollars for earthquake insurance in California
• the deductible is too high. This again particularly affects earthquake insurance which typically has a 10% to 15% deductible - leaving you out of pocket for $20,000 or $30,000 for a house valued at $200,000. Windstorm deductible is lower - usually around 4%

• cover is too limited. California earthquake policies will only cover $5,000 for contents and excludes major items such as sheds, landscaping and swimming pools

• belief that government disaster relief will help. FEMA provides grants for emergency repairs and temporary housing. Those with insurance may miss out on grants and low-interest loans.

Counter Argument - Why You Should Have Disaster Insurance

• Government aid is not guaranteed - do you trust your government? There has to be a major disaster declaration by the President before FEMA and SBA can help anyways. You may still suffer a huge loss - but not declared a major disaster. Floods particularly are often not declared as major disasters.

• After a disaster repair costs usually sky-rocket as contractors are swamped with orders. FEMA grants are limited and SBA loans are for a maximum of $200,000. And that is a loan not a payout - you just increased your debt significantly.

Should You Take Out Disaster Insurance?

There are 4 factors to weight and consider when you decide whether disaster insurance is worth it for you:

• what is the risk in your area? Earthquake risk is readily available, hurricane patterns are known, flooding is probably the most unpredictable.

• can you afford to self-insure? - if you can afford to replace your home don't bother with insurance.

• if you don't have the cash do you at least have access to a line of credit which would give you options after major damage.

• is your home disaster proof? It is certainly possible to build, or with more difficulty renovate, a house to withstand significant earthquakes. Hurricane proof homes are also possible. You can hire a hydrology expert or a geotechnical engineer to tell you how secure the land your home is built on. Sure it will generally cost more, to make your home disaster proof - but its entirely possible and may well save you money. A secure home will generally be low-rise, and the roof will be securely bolted to the walls and the walls to the foundations. Designs without large garage doors and plate-glass windows resists wind and shakes better to.