Tornado, Flood, Hurricane, Quake: Are You Covered for a Worst-Case Scenario?

The deadly tornadoes and flooding that affected many parts of the South and Midwest in April, the tragic earthquake in Japan, and a renewed sense of concern for national security after Osama bin Laden's death Sunday underscore the importance for property owners to be ready for a worst-case scenario.

Last week, insurance companies acted quickly to send extra adjusters and mobile units into states where tornadoes touched down, and tens of thousands of homeowners have filed claims. State Farm reported that it has received nearly 24,000 housing and commercial related claims in Tennessee, Alabama, Georgia and Mississippi, as well as nearly 20,000 auto claims in Tennessee and Alabama. Total insured losses from the tornadoes last week are expected to be more than $2 billion -- a high figure for tornado damage but still low compared to damage from hurricanes and earthquakes.

"The industry remains capable and prepared logistically and financially to handle these losses," said Robert Hartwig, president of the Insurance Information Institute.

The cost to rebuild Tuscaloosa, Ala., alone, parts of which were completely leveled, is expected to be between $40 million and $45 million, said Steve Wells, president of the Alabama Municipal Insurance Corporation, a not-for-profit company that provides coverage for the state's municipalities. Wells said he expects more cities and towns -- many of which have been utterly demolished -- to contact the insurance company in the coming week as they get valuation on the damage incurred. The corporation sent $1 million to Tuscaloosa on Tuesday to start repairs to city infrastructure, although significant rebuilding efforts may take weeks or months to get started, Wells said.

"Our job is try to get the cities back up to running and looking normal as soon as possible," said Wells.

Only 10% of California Homes Are Insured for a Quake

For homeowners -- nearly 97% of whom carry insurance nationwide -- wind damage caused by a tornado or hurricane is generally under basic policies. However, some high-risk areas may require additional coverage. Annual premiums for homeowner insurance in Tornado Alley, a region that covers parts of several state across the central United States, tend to be higher than the national average of approximately $800 to account for the added risk from severe weather.
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On average each year, twisters account for $1.1 billion in damages to crops and properties, and cause 80 deaths, according to the Insurance Information Institute. Hurricanes tend to be less deadly but more costly than tornadoes, with a total average cost of $5.1 billion and 20 deaths per year, according to data from NOAA.

Flood and earthquake insurance are two major exceptions to basic homeowner insurance policies. In California, which is almost certain to have an earthquake of 6.7 magnitude or larger in the next 30 years, only one in 10 homes has earthquake insurance, according to the California Earthquake Authority. That leaves the vast majority of homeowners in the state unprepared, said Glenn Pomeroy, CEO of the CEA.

"It's a matter of when, not if," Pomeroy said about the odds of a quake the size of 1994's Northridge temblor hitting in the coming three decades. That seismic event, which struck the San Fernando Valley and injured thousands of people, caused $20 billion in damages.

The massive March 11 earthquake and tsunami in Japan ushered in the largest one-month growth in new policies from California Earthquake Authority: More than 7,000 new policies were created in March. Earthquake insurance policies vary from state to state, although in California, all insurers must offer it as an option, and the cost to homeowners varies widely based on location and property value.

Other Property Dangers

In the last decade, natural catastrophes as well as man-made disasters have cost the global insurance industry billions upon billions of dollars. Hurricane Katrina, which devastated coastal gulf areas and New Orleans in August 2005, is on record as the most expensive natural disaster to date, costing insurers $45 billion in today's dollars.
The attacks against the World Trade Center in September 2001 cost more than $40 billion in 2010 dollars. It is estimated that losses from the Japan quake in March could add up to $35 billion, according to risk modeling company AIR Worldwide. That doesn't factor in the costs of cleaning up the nuclear contamination from damaged reactors that occurred in the wake of the tsunami.

In the last decade, floods have caused more than $24 billion in losses in the United States, according to the National Flood Insurance Program. Homeowners in high-risk areas can be required to carry flood insurance, which has an average cost of $600 per year. The government-subsidized insurance program, which was created in 1968 by Congress, offers policies to renters, homeowners and businesses. Currently, just over 5.5 million policies are in effect across the country, with the highest concentration in Florida, where there are 2.1 million policies, according to government data. [Learn more about homeowner flood insurance.]

"As we've seen from the damage caused by the recent tornadoes and severe storms that hit the Southeast, as well as flooding all across the country, natural disasters can be devastating," FEMA spokesman Brad Carroll said. "They can happen anytime, anywhere, and often without much warning. While we can't prevent natural disasters, there are steps we can take to get ready for them, such as purchasing flood insurance."

Nuclear accidents are not covered under homeowners insurance because the damage is so pervasive, said Dick Luedke, a spokesman for State Farm Insurance. However, damage incurred from terrorism-related events, including damage from fire, smoke or rioting, may be covered by standard policy, said Hartwig from the Insurance Information Institute. He added that small businesses are not likely to be covered for damage that stems from terrorist event, and they should confer with their providers. Most homeowner policies cover damage from fires, including wildfires, though the coverage can vary depending on location and risk. Notably excluded from most homeowner policies are landslides or mudslides.

Five Tips for Disaster Preparation

1. Know what your insurance covers. Check your policy and see where you are and are not covered, and what your exclusions are. Fill in the gaps with additional coverage if needed. Whether you live in a hail-prone area or coastal hurricane zone, make sure your coverage is up to date and included all the property you want to protect.

2. Inventory and document your belongings and property. In the event of a major disaster, the more detailed your records are, including receipts, inventories, photographs or videos, the more quickly your claim can be processed. Learn more about taking inventory at the Insurance Information Institute.

3. Determine your risk. FEMA provides diagnostic quizzes and worksheets to help property owners determine their level of risk for a natural disaster. The Red Cross provides information specific to a variety of disaster threats. The Centers for Disease Control provides detailed information about how to respond to chemical disasters.

4. Prepare an emergency kit and plan for your family. The government's Ready.gov website offers a complete list of supplies for a basic kit, which recommends a three-day supply of food and water for every member of the household.

5. Buy a hand-crank transistor radio (or battery-powered radios with extra batteries) to get news and information. Access to electricity, telephones and other communication systems may be limited after a major disaster. The Hurricane Store offers a wide selection of hand-powered devices.

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speedking8899

All insurance is a scam. Just a parasitic business based on insecurities of the general public. I've had no type of insurance ever except the required auto insurance. Remember, insurance companies are a business with the sole objective of making a substantial profit. Why pay them every year and get nothing? You buy a house, you take the risk. Natural disaster is the risk we all take as homeowners. Let the mindless govt. pay for all the insurance premiums if it requires such like with auto insurance.The only reason for auto insurance is because its too easy to obtain a license and society in general is dumbed down on the road by irresponsible immature low self monitors or the cognitively oblivious. What right do they have to inundate the airways with their nonsense commercials? Can't you see that they have no way of selling their nothingness and that's why they resort to silly irrelevent commercials.

How about life insurance? If that isn't the epitome of mindlessness. It's a disincentive to live. You only benefit if you die early so what are you expected to do--pay your premium and hope you die soon. The premiums become so expensive as you age so unless you die early, you have achieved nothing except giving your money to the insurance company to hold so they can invest and make money with your dollars.

June 13 2011 at 10:09 AM Report abuse rate up rate down Reply
hulagirlhb

I sell insurance for one of the country's largest carriers. I am amazed how many people shop for insurance SOLELY based on the cheapest rate....without even asking what it is they're buying. I love it when policy holders ask me detailed questions, however, those folks are few and far between. People need to keep in mind it is up to them to inform us agents & brokers of what they have. I am not a mind reader, I don't know that you have a hot wheels collection, or a 40K ring, or a 15K collection of spoons or belong to a HOA unless you tell me! Trust me, I am MORE than happy to make sure you are covered correctly as I don't want to tell you, after a loss, that your valuables aren't going to be replaced! I can't stress it enough, ASK US WHAT YOU'RE BUYING!!! Any decent agent will be happy to take an hour or three to go over it with you.....and if you've found one that won't, run!

May 05 2011 at 12:11 PM Report abuse rate up rate down Reply
park245

Make sure that you have FULL REPLACEMENT COST for household goods on your household policy, otherwise the insurance company will only reimburse you for the DEPRECIATED value of your furnishings and clothes. You don't want to know what their idea of depreciation is!!

May 05 2011 at 10:17 AM Report abuse rate up rate down Reply
bdzdean

Insurance companies really don't like customers who pose a high risk, or submit several claims.

Some insurance companies won't even insure your home on a new policy submitted due to a home owner owning what the insurance companies now considers a high risk breed of dog. The high risk breeds include, but are not limited to Pit Bulls, Mastiff's, Rotties, Doberman's etc.

And some insurance companies will non renew your coverage, if they find out you've acquired one of these so called high risk dog breeds. It doesn't matter how many years you've had a policy with them.

Its now common practice and a question that an insurance agent may ask you, as to what if any breed dog you may own. Especially if your applying for a new homeowners insurance policy. So even your family dog can now potentially cost you a higher annual premium, or in some cases a policy rejection for any coverage. It just depends on the individual insurance companies underwriting guideline policies.

May 05 2011 at 9:25 AM Report abuse rate up rate down Reply
bdzdean

What most people don't realize and fail to do when it comes to their insurance coverages, is as follows.

Its up to you to contact your insurance agent and avail your agent of any changes in your coverage. Depending on the changes it may cost you additional monies, or it could save you money.

Examples: You have a teenager currently listed on your policy as being a primary driver of one of your vehicles. If your son or daughter goes away to college, and is no longer living in your home on a day to day basis he or she is no longer considered the primary driver of one of your vehicles. He or she is now considered an away at school student, no longer living in your household and can now be listed as an occasional driver.

The other thing insurance companies like to do is put a young driver as the primary operator of the most expensive vehicle you own. Its up to you to tell your insurance agent exactly what vehicle your son or daughter is the primary operator of. If you own a newer $60,000 Cadillac and a less expensive $30,000 Chevy. Make sure the young driver is listed as the primary operator of the less expensive vehicle.

If you have a vehicle over 10 years old, or has very high mileage you may want to consider insuring it for liability only
as opposed to having it insured for full coverage. You may be paying a hefty premium for full coverage, yet the car may actually only be worth a few thousand dollars. And if the vehicle was to sustain severe damage in an accident, and cost more to repair then its actual value the insurance company will most likely claim the car as a total loss and only give you a few thousand dollars for its replacement value. Meanwhile you've been paying a good amount of money for full coverage on a vehicle that has very little value.

You can also raise your deductibles on your auto and homeowners policies. In most cases this can save you money on your annual premium.

All in all, its up to you to make sure your insurance agent has current and accurate information regarding your insurance policies. Review your current policies. Review your renewal policies carefully. And it doesn't cost you a cent to get quotes from other insurance carriers, if you feel your current premiums are on the high side.

May 05 2011 at 8:43 AM Report abuse rate up rate down Reply
Michael

Don't forget to prepare for an ECONOMIC disaster as well. You'll need more than 3 days of food for that!

May 05 2011 at 8:18 AM Report abuse +1 rate up rate down Reply
comfy01

State Farm is a disaster if you buy a policy with them. They will screw you every which way. I am trying to deaL WITH THEM NOW AND THEY STINK.

May 05 2011 at 8:13 AM Report abuse rate up rate down Reply
Ronnie

State farm was going to raise my home owners insurance to $700 a year,and i have never turned in a claim for home or automobile.They do this to cover the ones who have had losses.Anyway they lost me as a customer.

May 05 2011 at 6:55 AM Report abuse rate up rate down Reply
1 reply to Ronnie's comment
RYAN

Ronnie....Ive got a 3 homes and a business insured with state farm but I havent gotten that letter .....however,I had a new vw bug several years ago and I hit a deer,3500 in damage,I fixed it and sold the car a year later and got a benz,I hit a deer,3500 in damage on the benz.I had state farm my whole life on my cars including a porsche when I was 18 year old and I paid tons of money to have that fast car at that age,I had over 30 cars insured with state farm over the years and Im 45 years old today and state farm canceled my insurance after two deer hits....I couldnt believe it.

May 05 2011 at 7:06 AM Report abuse rate up rate down Reply
dterraman

expect it!

May 05 2011 at 6:35 AM Report abuse rate up rate down Reply
an8a

I am definetly trying to get ready. I even have a suitcase filled in case of the big one here in LA. Need just a few more items, but I think it is important ot prepare for an emergency. That and pray!

May 05 2011 at 3:53 AM Report abuse rate up rate down Reply