The costliest hurricane in US history, Katrina made landfall at Florida and left a trail of destruction right up to Texas. The worst affected states were Louisiana, Florida, Alabama, Mississippi and most of eastern North America. The confirmed death toll stood at 1833 deaths. The storm caused damage worth $108 billion. Last year’s Hurricane Irene caused damage worth $10.1 billion and left countless people homeless. Earthquakes are rarer than floods and storms but it doesn’t make them any less threatening. The 1994 Northridge earthquake caused 61 deaths, 1600 severe injuries and damage estimate was between $20 and $40 billion.
Homeowners are protected against most perils by the standard or the broad form policies. Fire, lightening, wind and smoke damage will almost always find coverage under regular homeowners policies. If you objectively look at the coverage provided by these policies, you are in for a rude awakening. As a rule of thumb, no standard homeowners policy carries coverage for floods and earthquakes. In case your home is located in an earthquake and flood prone zone, your mortgage company will push you into buying coverage for such disasters separately. Here are some of the things you might want to know about
Flood insurance
- Coverage – Flood insurance covers damage to your property caused by flooding. A standard flood insurance policy would cover structural damage to the building and its foundation, the electrical and plumbing systems, carpeting and appliances, heating and cooling systems and flood debris cleanup cost as well. The are policies which would also cover the contents of your home as well as certain valuable items up to a predefined limit.
- Special Flood Hazard Area (SFHA) – The National Flood Insurance Program or the NPIF collects flooding data and forms a map out of it. This particular map is known as the Flood Insurance Rate Map (FIRM). The SFHA are marked on these maps as potential zones of flooding. The NPIF’s floodplain regulations make it mandatory for homeowners located within the SFHAs to purchase flood insurance. Mortgage companies will also require you to carry flood insurance in case they feel that your property is located in a relatively hazardous zone.
- Federal program – You can obtain flood insurance if you live in a community that participates in the NFIP. Through the enforcement of certain flood plain management regulations and ordinances, a community can become eligible to participate in the NPIF. Federal Emergency Management Agency (FEMA) is the parent body that runs the NPIF and is responsible for issuing flood insurance coverage.
- Coverage – In most cases, earthquake insurance is sold to homeowners as a rider or endorsement attached to the standard homeowners policy. The deductible for earthquake insurance is based on a percentage of the overall policy limit which usually stands at 15%. The deductible can go as low as 2% in some cases but states with a high frequency of earthquakes mandate homeowners to carry a larger deductible.
- California Earthquake Authority (CEA) – The CEA was formed by a collection of insurance companies after the last major California earthquake devastated the state and caused millions of dollars worth of damage. CEA member insurers are the only insurance companies who sell proper broad form homeowners insurance policies drafted specifically to cover earthquakes. Policies issued by CEA member companies usually provide coverage for the basic dwelling which means that coverage for structures like garages and swimming pools are not included.
- Special provisions – Insurance companies charge a higher premium on earthquake coverage policies. This is because they are required to provide coverage to property owners by law even if the property doesn’t meet building, health and safety codes. Retrofitting acts such as reinforcing the foundation of a structure, riveting, bolting and retrofitting substructures within the building will attract lower premium rates and discounts.
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