Disaster Insurance

If we examine the typical natural disasters that can strike a home, our list is relatively short and includes:

Disasters not covered in a homeowers policy typically include: floods, earthquakes, windstorms, wildfires, volcanic eruptions, and landslides

Moneyzine Editor

• Earthquakes: while certainly more common in states like California, earthquakes can happen (albeit with low probabilities) nearly everywhere on earth.

• Floods: typically the result of abnormal rainfall, flooding can be the result of localized storms or hurricanes. As is the case with earthquakes, floods resulting from hurricanes are more common in the Gulf Coast states and North Carolina.

• Windstorms: again, a windstorm can range from a localized burst of wind to more organized storms such as tornados. Windstorms and tornados occur with a greater frequency in a stretch of the United States known as Tornado Alley, which runs through the states of Texas, Oklahoma, Kansas, Nebraska and South Dakota.

• Volcanic Eruptions: the least common of disasters, volcanic eruptions encompasses lahars (wet rock flow), lava flows, and pyroclastic flows (a high-speed flow of hot, dry, gas and rocks).

• Landslides: typically the result of rainfall, volcanic eruptions, avalanches, earthquakes or other events triggering large land movements.

• Fire: in the context of naturally occurring disasters, the typical event might be a forest fire or wildfire resulting from lightning strikes.

Insurance Exclusions

In the same way that insurance companies are up-front about identifying the perils insured against, policies are also very clear on what's not covered. These are known as policy exclusions. Depending on location, as well as the insurance carrier, the two most common exclusions are:

• Earth Movement

• Flooding

The good news is that most individuals are very likely insured against many natural disasters already just by owning a homeowners insurance policy. The bad news is that if the home is located in a flood prone area or in an area of the country where earthquakes are relatively common, then purchasing insurance against these disasters is necessary.

Flooding can occur in nearly all 50 states. In fact, according to the Federal Emergency Management Agency (FEMA), around 30% of all flood claims originate from areas that are categorized as moderate-to-low flood risk. Fortunately, flood insurance is universally available to homeowners via FEMA's National Flood Insurance Program (NFIP). A home located in a moderate-to-low risk area can purchase $250,000 in coverage for just over $450 annually. This same level of coverage in a high-risk area will cost in the neighborhood of $10,000. In 2012, the Biggert-Waters Flood Insurance Reform Act was passed. This act calls on the FEMA to make a number of changes to the way the NFIP is run. One of the changes has to do with premiums, which are scheduled to increase in some areas over time.

In most states, earthquake insurance can be purchased directly from a homeowners insurance company. The California Earthquake Authority (CEA) is a state-run insurance pool that is responsible for most of the policies sold in California. The cost of earthquake insurance will vary by geography, the value of the home, the dwelling type (year built), as well as the number of stories (multilevel versus single story). The factor having the biggest influence on cost, however, is the location of the home. For example, a $1 million policy for a new, single-story home will cost around $350 in the San Diego area, while that same policy for an identical home located in Oakland will cost closer to $3,800.