Natural Disasters and Homeowners Insurance

Discover what is covered and what isn’t when it comes to how homeowner’s insurers view natural disasters.

Seven Perils

There are seven major disasters to consider when obtaining homeowner’s insurance coverage.

Earthquakes- This sudden shifting and breaking of rock below the earth’s surface can cause property damage from ground movement or fire.

Floods- Ninety percent of all presidentially declared natural disasters involve flooding. Floods cause billions of damage to U.S. property each year.  And, if you live in a high risk area, your home has a 26 percent chance of being damaged by flooding compared to a 9 percent chance by fire over the course of a 30 year mortgage.

Hail- The largest hailstone ever recorded in the United States was nearly the size of a soccer ball. In an average year, hail causes $2 billion worth of property damage.

Hurricanes- Hurricanes cause property damage via wind, rain or flood. These ferocious storms including Katrina, Charley and Andrew, threaten life and property.

Lightning- There are thousands of lightning strikes in the United States killing an average of 73 people each year.

Wildfires- In an average year 140,000 wildfires burn an average of 14.5 million acres.

Tornadoes- About 1000 tornadoes are reported each year resulting in 80 deaths and more than 1500 injuries.

Covered Property

Definitions of covered property fall into four categories:

• Dwelling or structure of the house
• Other structures separate from house (garage or shed)
• Personal Property including the contents of your home
• Loss of use meaning additional living expenses if the home is uninhabitable

An open peril policy lists all the perils that are excluded from coverage. A named peril policy lists all the coverages that are included. Named peril policies are generally more restrictive. (Note: A peril is a cause of loss.)

What Does My Policy Cover?

Earthquakes are usually excluded although losses related to fires caused by earthquakes can be covered. A separate policy or a government mandated policy can be purchased.

Floods are also usually excluded from coverage. You’ll have to buy a separate flood policy.

Hurricane loss is usually covered except for loss due to flood.

Tornado loss is usually covered. This includes windstorms.

Wildfire losses are covered by the property portion of your homeowner’s policy.

Lightning losses are also covered.

Hail damage is also usually covered.

Insurance Claim Payout

Depending on the policy type, dwelling coverage options (after the deductible is satisfied) could be:

• Replacement cost coverage- This means that you will be paid what it costs to replace any damages (You pay more premium for this option).
• Actual cash value- This type of policy will pay out the market value of what is lost.
• Special payment- The loss is paid prior to the dwelling being repaired or replaced.
• Functional replacement cost- If a total loss, the payout will be the market value of the home. Repairs are made using modern materials without a depreciation deduction.
• Stated value- The value is agreed on by the insured and insurer at the beginning of the policy term.

Steve Wyrostek -HomeownersInsurance.org Expert A 20 year plus veteran of the insurance industry, Steve managed departments in the personal and commercial lines areas of major insurers. He’s familiar with how insurance—ranging from boat to workers compensation—works.