There are things beyond our control. Is insurance necessary? Learn more on “What Most People Get Wrong About Insurance Coverage for Natural Disasters”.
Let me warn you up front: your perception of the policy you have for natural disasters may be dangerously inaccurate. I don’t say that to frighten you, but I’ve witnessed far too many individuals being caught off guard while standing in front of their abandoned homes and hearing the two most heartbreaking words from their coverage company: Not insured.
Earthquakes, storms, wildfires, and floods are all commonplace in our world today. They’re actually getting unsettlingly commonplace. However, most people believe that they are covered if they have homeowners or tenants insurance, even though the number of disasters has increased.
That is where the error is. The majority of insurance plans are designed for routine situations rather than catastrophic ones.
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What Most People Get Wrong About Insurance Coverage for Natural Disasters
The Perilous Presumption
I would want to dispel the following fallacy today: “I have insurance for your home, so I’m covered if an unforeseen event hits.”
The fact is that damage from natural disasters like hurricanes, earthquakes, and floods is not always covered by standard policies. And that’s intentional, not a flaw.
Consider floods. In the United States, flood insurance is nearly always offered as a stand-alone policy by private insurers or the National Flood Insurance Program (NFIP). The same is true with earthquakes, which typically call for a completely other plan or a special add-on.
You’re putting all of your money on a coin toss if you reside in a “low-risk” location and believe you’re safe without these additions.
“But I don’t live in an area that is prone to disasters.”
Let’s take a moment.
The most common natural disaster worldwide is flooding. And you know what? Low-to-moderate risk locations account for over 25% of flood claims, according to FEMA.
Wildfires? They have no concern about your zip code’s level of relaxation either. Storms of wind? They’re spreading to areas we don’t typically think of as tornado-prone.
The world is evolving. Patterns of the climate are changing. Whether you are aware of it or not, you are vulnerable if you are depending on outdated presumptions and general coverage.
Comparing What’s Covered and What Is Not
Let’s be realistic. The typical breakdown of coverage for common calamities is as follows:
- Typical insurance do not cover floods. You must have your own flood insurance.
- Typically, earthquakes are not covered. Policies or endorsements for earthquakes need to be obtained individually.
- Hurricanes: Covered in part. Unless you’ve got flood insurance, flooding from hurricanes is typically not covered, but wind damage may be.
- Wildfires: Usually covered, however the coverage may not be sufficient for long-term displacement or complete reconstruction.
Furthermore, many policies feature exclusions, high deductibles, or payout restrictions that might render you paying hundreds of thousands of dollars out of pocket, even in cases where a particular calamity is officially covered.
This is where things become even more complicated.
The fine print may break your heart.
Have you ever read your entire policy? Yes, the majority of people don’t. It’s alright, I’ve been there. However, hidden inside those pages are provisions that have the power to make or ruin your post-disaster financial destiny.
Among the worst surprises I’ve witnessed are:
- Anti-concurrent causation clauses: The entire claim may be rejected if a covered event (such as wind) occurs concurrently with a non-covered event (such as flooding).
- Limits of coverage: Rebuilding your home may only be covered by your insurance up to a specific amount. After a tragedy, you can be left holding the bag if construction expenses increase.
- Limitations on loss of use: Many plans provide short-term coverage for temporary lodging. However, what if it takes months or more for your area to recover?
There is no paranoia here. It’s getting ready. And insurance is meant to be about being prepared.
The Things You Should Do Instead
I’m not only here to draw attention to the issues. Let’s see what a more intelligent, knowledgeable strategy looks like.
Examine your existing policy now.
Not the following week. Not the following month. Today. Ask directly, “What catastrophic events am I not covered for?” when you call your provider. If at all possible, get it in writing.
Know the True Risks in Your Area
Never depend on reputation. Utilize actual data. You can determine whether your location is vulnerable to earthquakes, wind events, fires, or flooding by consulting hazard maps, FEMA, or municipal emergency management agencies. What you discover may surprise you.
Take into Account Supplementary Policies
- Flood insurance is worthwhile even if you don’t live in a high-risk area.
- coverage of earthquakes: Particularly if you’re in states like California, Oregon, or even certain Midwest states.
- Extended dwelling coverage: Beneficial in the event that the cost of reconstruction after a major disaster is more than anticipated.
Make a list of everything you own.
You have to demonstrate what you’ve lost in a disaster. Take pictures or videos of your possessions as you move throughout your house. Keep this somewhere secure, like the cloud.
Understand Your Limits and Deductibles
Rather than being a set sum of money, some disaster-related deductibles may be expressed as a percentage of the value of your house. That is a significant difference.
Don’t Depend on Condo or Landlord Insurance
If you rent, the building, not your belongings, is covered by your landlord’s insurance. Your homeowners association may only cover common areas if you own a condo. Recognize your responsibilities.
One Last Remark
Being insured isn’t exciting. We don’t like to think about it too much. But if I’ve learnt anything, it’s that you don’t understand how important something is until you really need it, and by then, it’s too late to alter the fine print.
I’ve had pals sit across from me who believed they were safe. Due to flaws in their policy, I have witnessed people crowd-funding the cost of reconstruction. It is preventable, and it is heartbreaking.
I’m asking you to please don’t put this off. Don’t think you’re protected. Take out your policy. Pose challenging queries. Even if it’s tedious, put in the extra time. In actuality, disasters don’t extend invitations. They simply appear.
