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Investing in Catastrophe Insurance Coverages: What You Need to Know

Posted by Parker Beauchamp on Jul 07, 2016


Many people think their home will never be affected by severe seasonal weather. As a result, they don’t invest in the proper insurance coverages. Unfortunately, those individuals may find themselves with crippling financial liabilities, should the unexpected occur.

To protect your home from damages or loss during severe summer and fall weather seasons (e.g. hurricanes or flooding), you must understand your exposure and potential for loss. From there, you and your insurance advisor can determine appropriate insurance coverages and whether or not you can afford to forego catastrophe insurance for your home.

Below is an overview of how to determine if you may need catastrophe coverage, the different types of insurance, and how to assess the amount of coverage you may need.

Where Do You Live? Important Questions to Consider

When determining what type of catastrophe coverage you may need, it’s important to be aware of the potential insurance implications you face when living in high-risk areas. For example, living in a coastal region or flood zone warrants considering severe weather coverages.

In recent years, just by watching the news, we have seen a greater variability and severity of weather events than in prior decades. Parts of the country not typically exposed to weather disasters are now frequently getting hit. Keep this uncertainty in mind when assessing your risk.

When determining catastrophe insurance coverage needs, consider the following questions:

  • Do you live in a high-risk, severe weather area?
  • What types of severe weather could damage your home?
  • What is the likelihood of severe seasonal weather where you live?
  • Does your current homeowners insurance cover damage from abnormal seasonal weather?
  • What is the value of your house and property?
  • What assets need to be protected in the event of a natural disaster?

If you’re unsure of the weather in your region, The National Oceanic and Atmospheric Administration (NOAA) National Centers for Environmental Information routinely publishes State of the Climate Reports.

What Seasonal Severe Weather Requires Coverage?

Catastrophe insurance is intended to provide coverage in the event damage occurs to your home or property during a severe weather storm. Most homeowners insurance policies cover a range of severe weather events, such as tornado, wildfire, hail, and high-wind damage. However, hurricane and flood coverage is not typically covered by standard homeowners insurance.

Peak hurricane season runs from mid-August to late October, causing enormous damage in its wake. And while details vary by policy and state, there’s also a thin line between what standard homeowners policy covers and what hurricane insurance covers. Supplemental hurricane insurance is often required, especially in high-risk coastal areas. Typically, insurers limit their risk by using percentage deductibles based on a home’s value.

Flood risk is determined by current weather patterns, natural changes in the environment, and recent developments in communities. A flood occurs when two or more acres of normally dry land, or two or more properties, are inundated by water or mudflow.

For flood coverage, homeowners must purchase a flood insurance policy through the National Flood Insurance Program (NFIP). To qualify for National Flood Insurance, residents must live in a community that participates in the NFIP.

How Much Coverage Is Necessary?

Choosing hurricane and flood coverage is left to your discretion as a homeowner. It’s your responsibility to have the necessary conversations with your insurance partner to determine whether or not these coverages (and to what extent) are a fit.

Related Resource: Smarter Homes, Smarter Insurance: Reducing Homeowner Risks with Smart Home Technology [ebook]

While severe weather and its extent of damages is unknown, your coverage and financial protection against those losses doesn’t have to be. Think you might want to invest in a catastrophe insurance plan? Request a free consultation today!

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Topics: Personal Insurance