Catastrophe Insurance: Protect Your Home From Disasters
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Catastrophe insurance refers to an insurance rider or standalone policy that covers your home against certain natural disasters not covered under a standard home insurance policy, such as earthquakes, floods and more. Catastrophes can strike your home at any moment, with some states vulnerable to certain perils more than others. Powerful hurricanes can flood coastal states. Tremorous earthquakes can destroy states along fault lines. Forceful tornadoes can blow through open plains.
Beyond fortifying your home, carrying the right type of home insurance can help absorb some of the costs of repairs and replacement of personal belongings after a covered catastrophe. Keep reading to learn how catastrophe insurance works and which types of coverage you should consider.
What Is Catastrophe Insurance?
Catastrophe insurance commonly refers to an insurance rider — an add-on to your standard home insurance policy — that covers your home against certain natural disasters. It can also be a standalone policy purchased separately from your home insurance policy.
Catastrophes are usually caused by natural disasters, such as floods, earthquakes, volcanic eruptions and sinkholes. Purchasing catastrophe insurance typically means you're buying coverage against a specific catastrophe. Earthquake insurance, for example, only covers damages to your home caused by earthquakes, while flood insurance only covers damages to your home caused by floods. There is no blanket catastrophe insurance policy that insures your property against all natural disasters.
How Does Catastrophe Insurance Work?
Across the United States, there are multiple catastrophes that result in billions of dollars of damages to homeowners. This has created a demand for insurance policies that cover your property against certain perils. Because the likelihood of a catastrophe occurring can vary by region, there is a demand for certain types of insurance in certain states. Flood insurance, for example, would likely be more useful to coastal homes than a homeowner in a desert region.
In standard homeowners insurance policies, you are covered against many types of catastrophes, but not all. Here is an idea of the type of natural perils and malicious events a basic policy covers you for:
As you can see, you're covered against some catastrophes in a standard policy. Wildfires, for example, are covered as "fire damage" and "smoke" in most policies. Volcanic eruptions are also covered by basic home insurance. However, there are multiple holes in your coverage — damages from earthquakes and floods, for instance. Buying catastrophe insurance can plug some of those holes in your protections.
Most forms of catastrophe insurance are optional but some types may be required depending on your home and its location. Take a flood insurance policy, for example. Homes that are located in Flood Zone VE, an area with a higher annual percentage of experiencing a flood, are required to purchase flood insurance if they have a federally-backed mortgage loan.
Types of Catastrophe Insurance
With so many different types of natural disasters, insurance companies have developed several types of standalone insurance policies or riders to provide different types of coverage. Some common examples of additional catastrophe insurance you can purchase include:
Land and mudslides
Wildfires, hurricanes and tornadoes
While damages from wildfires, hurricanes and tornadoes may be covered under standard home insurance as fire damage and natural disaster damage, depending on your insurance company and your home's location, a separate deductible may apply to damages from those types of catastrophes. Homeowners in coastal states North Carolina and Maine, for example, may be required to pay a separate hurricane deductible due to their increased vulnerability to coastal storms.
What Can You Do if Your Property is Damaged as a Result of a Catastrophe?
If your home is damaged by a covered catastrophe, you will want to contact your insurance company to begin the claims process and confirm coverage. The faster you confirm that the damages are a covered loss, the faster you can begin repairs and receive your claim payout for rebuilding or replacing damaged property.
Your insurance company will likely ask for documentation of the damages, which may include photos of the videos of the catastrophe's aftermath. An adjuster may be sent out to assess the damages in person before approving or denying your claim.
Claim payout process
If approved, your insurance company will typically fulfill your claim by mailing you a check. The first check may only be an initial advance against the full settlement amount and you may receive separate checks for claims against your home's structure and your personal belongings, if you have a replacement cost policy.
Keep in mind that damaged property will typically be replaced at actual cash value unless you purchase replacement coverage. When you receive a check for an item's cash value, the amount will be for the value of the item after subtracting its depreciation.
If you do not fully own your home because you're still paying off your home mortgage, then the check may be made out to both you and your mortgage lender. In some cases, the insurance company may make arrangements to pay the contractor directly if your home's structure is undergoing repairs.
Additional living expense coverage
If your home is temporarily uninhabitable due to a covered loss, then your home insurance policy may send you a separate check to cover additional living expenses. For example, say your home is undergoing repairs after the ground floor was completely flooded after a hurricane. Your insurance company can cover your hotel bills and daily meal expenses, up to the coverage limits, as you finish repairs.
Where Can I Get Catastrophe Insurance?
In many cases, you will need to buy catastrophe coverage in the form of a private insurance policy from a private insurance company. For many homeowners, your existing home insurer will likely sell additional coverage to address some type of catastrophe. Many national carriers sell earthquake and flood insurance policies, including Farmers, Allstate, State Farm and Nationwide.
National Flood Insurance Program
Flood insurance is unique since policies can be purchased from an insurance company or the National Flood Insurance Program (NFIP), which is administered by the Federal Emergency Management Agency (FEMA). An NFIP flood policy typically costs more than a private plan.
Flood insurance policyholders should note the 30-day waiting period. You will not be covered for flood damages during this time.
How Can I Protect My Home From Catastrophes?
The following tips can help you reduce damages to your home and personal belongings when a catastrophe occurs in your area.
Get the right amount of coverage
Purchasing the right amount of coverage is essential for adequately protecting your property. Depending on the type of policy you have and the value of your home and belongings, your current coverage may not be enough to cover damages after a catastrophe.
Creating a home inventory can help you more accurately estimate the value of your personal belongings. When taking stock of your belongings, take pictures and record the date and location of purchase, the product details, serial numbers etc. If possible, store and organize all receipts and appraisals. Be sure to update your inventory regularly, especially after upgrades and expensive purchases.
Consider replacement cost coverage
If you want to be fully reimbursed when replacing items from a covered catastrophe, then consider buying replacement cost coverage. Actual cash value coverage typically only compensates you for the value of your belongings minus depreciation. The check you receive typically won't be enough to replace belongings with new purchases.
If you buy replacement cost coverage, your insurer will typically send you two checks. The first check is for the actual cash value of the item. After you make the purchase to replace the damaged item, your insurer should send you another check for what you paid out of pocket.
Fortify your home
You may not prevent all forms of damage to your home during a catastrophe but there are steps you can take to mitigate risk. The following tips may help protect your home and personal belongings when disaster strikes:
Storms and hurricanes: Secure your roof with roof straps; invest in hurricane-tempered glass windows; trim your trees; secure outdoor furniture.
Earthquakes: Anchor heavy wall furniture; strap bookcases and shelves to walls; prune tree branches; regularly inspect your home's foundation.
Floods: Seal basements with waterproof compounds; install flood vents in your foundation walls and garage; secure outdoor furniture; seal cracks and gaps around windows and doors.
Tornadoes: Trim your trees; swap out rocks or gravel with mulch when landscaping; secure outdoor furniture; install impact-resistant roofing; install window storm shutters.
Wildfires: Remove dead vegetation and debris from around your home, gutters and roof; store firewood away from the house; invest in fire-resistant roofing materials; invest in tempered glass windows.
Do You Need Catastrophe Insurance?
While any area is vulnerable to some type of catastrophe, the urgency to purchase additional coverage to address that peril will vary by location.
To help you decide whether or not to buy catastrophe insurance, you will want to assess your home's risk for certain natural disasters. Living in a coastal region should be an immediate indicator that your home is vulnerable to powerful storms, high-speed winds and heavy flooding. Living in a state along a fault line puts you at a higher risk of earthquakes.
Flood insurance may be a requirement if your home is located in a high-risk flood zone and you have a federally-backed mortgage loan. Even if you have a private mortgage, your lender may still require you to buy flood insurance to protect their investment until you pay off your loan.
Be Prepared When Catastrophes Hit Unexpectedly
While we have technology that can help predict when certain catastrophes happen, they only provide estimates. Natural disasters can hit when you least expect them or cause more damage than anticipated. Catastrophe home insurance can help you stay proactive in protecting your home, personal belonging and finances.
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