In 2016, natural disasters accounted for $23.8 billion in insured losses. Out of that number, severe thunderstorms accounted for $14 billion in damages. It’s clear that natural disasters such as hurricanes, floods, and earthquakes are physically and financially devastating. This is why homeowners, landlords, and renters should consider catastrophic home insurance.
What is Catastrophic Home Insurance?
Catastrophic home insurance is coverage specifically for damages and losses caused by a catastrophe. If a man-made disaster or natural disaster is likely to cause more than $25 million in insurance claims, then it’s an official catastrophe.
Some catastrophes are covered by auto, homeowners, or renters insurance policies. And sometimes there’s an option to add coverage to your existing policy. But some catastrophes aren’t covered by traditional insurance and require that you purchase separate coverage.
What Type of Catastrophe Requires Separate Coverage?
The specifics of catastrophic home insurance differ by insurer. The following events are examples of what might require a standalone insurance policy:
1. Floods.
Flood insurance is suggested for anyone living on or near a floodplain. Most people think their homeowner’s insurance includes flood coverage, but it doesn’t.
2. Hurricanes, Tornadoes, and Tsunamis.
Insurance for these events is suggested for people who live in high-risk areas. For example, several states are collectively known as Tornado Alley. And areas near large bodies of water are at-risk for hurricanes and tsunamis. Although typical insurance usually does cover some damage from these events, it’s likely not enough coverage for the aftermath of an official catastrophe.
3. Earthquakes.
Typical insurance doesn’t cover earthquake damage. If you live in a state where earthquakes are common, then you’ll need an earthquake policy. States along fault lines, such as California and Hawaii, are considered high-risk areas.
You’ll need to speak with your insurer to confirm which disasters require a separate policy. Insurers differ in what they cover, so it’s important to clarify the specifics of any coverage you might want to purchase.
What Costs are Associated with Catastrophic Home Insurance?
The premiums for catastrophic home insurance are lower than traditional homeowners insurance. But if you live in an official high-risk area, your premiums are likely to cost more than average. A Florida resident is likely to spend more than $2000 a year on homeowners insurance because Florida is at high-risk for several catastrophic events.
To lower premiums, some policyholders choose high-deductible plans. The higher the deductible, the less you’ll pay for your monthly premium. But you risk having a deductible that you can’t easily afford. Some policies are also percentage-deductible based, which means you pay a percentage of the damage instead of a set amount.
Ways to Reduce Cost
If catastrophic home insurance is for you, then take steps to make it less expensive. Some insurers offer a multiple-policy discount. Check with your existing homeowners, life, or auto insurer to see if they also offer catastrophic home insurance. Some insurers also offer discounts when you install smoke detectors, storm shutters, and other protective items that make your home more resistant to destruction.