Important Disaster Insurance Coverage Considerations
Are you covered with enough types of disaster insurance? Do you have "replacement coverage"? Insurance companies and governments are always changing the
criteria of insurance coverage and how much they will pay.
Kiplinger Newsletter recently put out the following surprising
facts about disaster insurance coverage:
Did you know that--
- If your property suffers earthquake damage, you aren't covered unless you have a special insurance policy or rider? (See below about this special kind of insurance, especially if you live in California.)
- If your property is damaged or destroyed by a nuclear explosion whether by accident or an act of war/terrorism, you won't typically be able to file a claim unless the event is declared by the Federal government as an act of terrorism? Even then, the recovery amount is capped. See exceptions below.
- However, if your home is destroyed by volcanic activity, you are covered! Go figure!
- If your residence has a basement (finished or unfinished) and it is damaged by a flood of water (internal/external),
homeowner insurance will only cover fixed appliances like the furnace, even if you have separate flood insurance.
Nor, will the regular homeowner policy pick up the damage tab ! The upper part of the home is covered, however.
(You may be able to get some recovery via the Federal government disaster declarations but check below about flood insurance.)
- If a storm, hurricane, or tornado blows down your neighbor's big tree (or it just falls over) and damages your place, your insurance will ultimately pay for the damage, not theirs.
Please go over your insurance(s) for your home with a "fine tooth comb" to make sure you know what is covered and how. If you have any questions or concerns or need additional coverage, get with your insurance agent and take care of your coverage's before it's too late. Don't assume coverage--it is an ugly feeling to find out that the "fine print" states "no coverage--sorry."
Nuclear disaster insurance is not covered in any single homeowner policy!
Here one must look to the Price-Anderson Act for possible financial assistance.
The nuclear plants provide a pool of insurance funds at great cost to the corporate owners which acts as a "set-aside" for anyone suffering from a disaster caused by their plant. This would not only cover your home but bodily injuries, living expenses, and radioactive sickness.
Other insurance concerns you need to investigate, in detail, involve tsunamis, forest and grass fires, hurricanes, tornadoes, and mudslides, all of which have been experienced in the U.S.
For example, as of 03/2011, on the topic of Terrorism, some insurers are already building in protections to prevent their businesses from getting wiped out financially from a catastrophic event by too many claims. Check out the information below provided by an insurance company recently and plan accordingly in terms of acquiring proper coverage that may not be included with your regular home, apartment, or condo insurance.
You should review your policies for your home in detail every two years with your agent.
Things change and you may have forgotten about a circular that came with your last premium notice!
State Farm recently announced changes to the Terrorism Risk Insurance Reauthorization Act of 2007 and their outstanding policies. They have now notified all of their policy holders as of March 2011. We suspect that all of the other insurances carriers in the U.S. have or will be doing the same shortly. Here is their Policyholder Disclosure Notice of Terrorism Insurance Coverage:
"Coverage for acts of terrorism is not excluded from your current policy. However, your policy does contain other exclusions which may be applicable, such as an exclusion for nuclear hazard. You are hereby notified that under the Terrorism Risk Insurance Act, as amended in 2007, the definition of an act of terrorism has changed. As defined in Section 102(1) of the Act: the term "act of terrorism" means any act that is certified by the Secretary of Treasury-in concurrence with the Secretary of State, and the Attorney General of the United States-to be an act of terrorism; to be a violent act or an act that is dangerous to human life, property, or infrastructure; to have resulted in damage within the United States, or outside the United States in the case of certain air carriers or vessels or the premises of a United States mission; and to have been committed by an individual or individuals as part of an effort to coerce the civilian population of the United States or to influence the policy or affect the conduct of the United States Government by coercion.
Under this policy, any covered losses resulting from certified acts of terrorism may be partially reimbursed by the United States Government under a formula established by the Terrorism Risk Insurance Act, as amended. Under the formula, the United States Government generally reimburses 85% of covered terrorism losses exceeding the statutorily established deductible paid by the insurance company providing the coverage.
The Terrorism Risk Insurance Act, as amended, contains a $100 billion cap that limits U.S. Government reimbursement as well as insurers' liability for losses resulting from certified acts of terrorism when the amount of such losses exceeds $100 billion in any one calendar year. If the aggregate insured losses for all insurers exceeds $100 billion, your coverage may be reduced.
There is no separate premium charged to cover insured losses caused by terrorism. Your insurance policy establishes the coverage that exists for insured losses. This notice does not expand coverage beyond that described in your policy."
This is your notification that under the terrorism risk insurance act, as amended, any losses resulting from certified acts of terrorism under your policy may be partially reimbursed by the United States Government and may be subject to a $100 billion cap that may reduce your coverage.
It would seem, as defined above by the State Farm Insurance Company, that the acts of terrorism
can be an all encompassing term for insurance claims. If a terrorism act triggers a flood or a nuclear disaster as a follow-on event, how is the end result classified under the insurance carrier's definition--flood, nuclear explosion/contamination, or terrorism?
Since the Federal government is looked to by the insurance carriers for classification of terrorist acts, does the act determine the limits of coverage or does the follow-on event(s) like flooding, fire, or radioactive contamination serve as the basis of claims for the homeowner? This needs to be clarified in writing from the carrier.
Flood insurance is backed by FEMA through the National Flood Insurance Program (NFIP) which can help protect your home and
contents for as low as $129/yr (2011). FEMA sets the rates so they are consistent across carriers in the U.S.
But, it's not clear and precise exactly what is covered. So, you need to get with your agent and understand.
Maybe, your carrier doesn't even provide the option of flood insurance! The NFIP website does provide names of carriers
by region along with the approximate costs. FEMA National Flood Insurance Program
From Farmers Insurance You Have These Recent Findings:
- The most common natural disaster in the U.S. is flooding.
- Flooding occurs in all 50 states.
- The average flood claim in 2009 was over $25,000.
- 25-30% of claims occur in the Low to Moderate Risk areas!
- Only 10% of homeowners in 2010 had flood insurance.
- A regular homeowner policy does not cover home or property for floods.
- A flood insurance policy takes 30 days to become effective once signed and paid for.
So, check with a local real estate or insurance agent as to whether you are in a flood plain and if so, what would a flood insurance policy cost.
With the recent 9.0 earthquake in Japan this month (3/2011), we in the U.S. and elsewhere in the world, have been reminded by Mother Nature that our planet is always undergoing seismic events in both expected and unexpected areas. The eastern coast of Japan has been hit with tremors between 4 to 6 magnitude almost hourly. USGS recorded 19 earthquakes in that region alone 3/26/2011!
But, even Memphis, TN is near a fault called the New Madrid seismic zone where in 1811 an earthquake changed the course of the Mississippi River and rattled windows along the east coast. This area is statistically a high probability of having another one of 6.0 or greater anytime within the next 50 years.
Generally, home insurance does not specifically cover property for earthquakes. Separate coverage endorsements or policies must be purchased. Most purchasers of earthquake insurance are on the West Coasts--states of California, Oregon, Washington, and Alaska.
The "Ring of Fire" runs all along the western coast in several fault zones. The San Andreas fault offers the greatest chance of another earthquake above 6.7 magnitude within the next 30 years. This is 99% CERTAIN according to the USGS scientists. That doesn't leave much room for guessing.
Currently, there is a new book out by an earthquake scientist that says there is a more dangerous fault off the western shoreline which if it triggers an earthquake, a tsunami of epidemic portions will be generated and cause unimaginable damage to these coastal cities.
The most recent earthquake that hit Northridge, California in 1994 was a 6.7 magnitude earthquake that killed over 55 people and an estimated $40 billion in damage in just a few minutes. Imagine what a 9.0 earthquake like Japan's would do for the area!
Here are some general facts for your consideration when shopping for earthquake insurance:
- What does the coverage entail-your home, garage, outbuildings, cars?
- What about home contents and what's required for proof of insurance?
- Are living expenses covered should you not be able to occupy the home until repaired or replaced?
- What deductibles must you be expected to pay in case of a loss?
- Are there any limitation caps or exclusions and what are these?
- Can you get a policy that covers the purchase price of your home just not the current market value? (With most homes being "underwater" today you would want your mortgage and equity covered if possible wouldn't you?)
- If you suffer flooding or total loss from an earthquake tsunami, will you be covered or does that require another policy rider?
- What about loss of life for family members? What's covered? Funerals?
- Is there medical coverage and how much if family members are injured?
- How much time can elapse before you file a claim after an earthquake loss?
Keep in mind earthquake insurance rates vary greatly for the same area and coverage so you must shop carefully. But, with the
use of the internet, this burden has been greatly reduced and if used right, and it can put you in the driver seat for
finding the right type and price of insurance.
Factors that insurance companies consider for earthquake coverage are location from a fault line; water sources like rivers, lakes, or oceans; and the type and age of your home.
Insurance firms generally
classify quake location probability on a scale system from 1 to 5. Newer homes cost less generally and wood homes handle
earthquake stress better than block or stucco construction. Homes with pre-stressed concrete slabs should also receive
a premium discount.
In the state of California, residents can buy earthquake insurance through insurance companies participating in the
California Earthquake Authority (CEA). This government entity negotiates for lower premiums for homeowners desiring coverage
with insurance carriers.
The degree of coverage determines the price of course where costs can range between $200 to $2,000/year depending
on the home value and location. There are about 18 companies offering earthquake insurance so look for the
business relationship indication when dealing with a particular company. Would you believe that only 12% of California
residents even buy earthquake insurance? And, we thought the "high rollers" were all in Vegas!
Adapted from MSN Money/Insure.Com. (3/2011)
State Farm Insurance Rider (3/2011)
Farmer's Insurance Circular Advisory (3/2011)
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