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Catastrophe Insurance

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Catastrophe Insurance
Homes in Alaska were badly damaged after an earthquake. Source: Anchorage Daily News

While standard home insurance policies include several different types of coverage to protect your home, they include lists of events that are excluded from coverage as well. If any damage occurs from one of these events, your insurance company will not accept any claims to provide financial protection or recompensation for the needed repairs.

These excluded events often include natural disasters like floods, earthquakes, and hurricanes. Additionally, while many home insurance policies will have coverage for civil disturbances such as riots, you may have to explore other options if you want extensive financial protection in the event of other man-made emergencies that could impact your home and your property.

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Catastrophe insurance, which can be purchased for residential property as well as for business, offers policies that provide comprehensive coverage for natural and man-made disasters that home insurance often won’t be able to cover.

What Does Catastrophe Insurance Cover?

There are two types of these policies, general catastrophe insurance and specified catastrophic event insurance. Specific catastrophe insurance is often available for natural disasters, particularly for earthquakes and floods. 

Since standard home insurance policies have earthquakes and floods excluded for coverage, homeowners who live in areas with a high risk of either will need to purchase separate policies to protect their homes. 

Because catastrophe insurance is able to provide protection from a wide range of natural and manmade disasters, it can protect you from financially devasting losses from events that can be hard to predict in the future.

When calculating the cost of your policy, insurance companies will evaluate your situation based on what kind of damage your home and property are at risk for suffering, the type of home that you have, and the amount of coverage you want to have. Your final premium amount will also be impacted by the deductible you will pay for each claim.

Additionally, much like other forms of home insurance, your catastrophe insurance can offer one of two types of coverage:

In the event of an accepted claim on your policy, replacement cost coverage would include the cost of completing rebuilding, repairing or replacing your home and/or property. On the other hand, actual cash value coverage, which is a more affordable option if you want a lower premium, only reimburses you for the current, depreciated costs.

What Kinds of Specific Catastrophe Insurance Are There?

Homeowners living in areas that are commonly affected by certain natural disasters can purchase specific catastrophe insurance policies for these natural disasters as well. These events can include:

  • Floods
  • Tornadoes
  • Hurricanes
  • Earthquakes
  • Fire
  • Volcanos

Flood insurance is particularly common in certain areas. Affordable coverage from the U.S. government’s National Federal Insurance Program is available to homeowners living in areas identified by the Federal Emergency Management Agency (FEMA) as vulnerable to damage from flooding. 

Homeowners considering catastrophe insurance need to know that these policies often have specific time requirements on when a purchased policy can go into effect. For flood insurance policies offered by NFIP, policyholders have to wait 30 days before their policy is, in essence, “active.” Any damage during that time isn’t covered under their policy. 

Similarly, hurricane insurance policies will often have a condition that states that the homeowner needs to have purchased the policy before the National Weather Service names an oncoming hurricane in order for a claim to be filed. These time constraints make it even more crucial that homeowners make timely decisions when considering if they need catastrophe insurance.

What Kind of Catastrophic Insurance Should You Choose?

Homeowners living in areas at high-risk for specific natural disasters should consider the specific policies that apply to their situation, but others may need or want the comprehensive coverage that a general catastrophe policy can provide.

While homeowners in these situations may find specific policies useful, general catastrophe coverage can provide comprehensive protection for businesses and homeowners with varying needs.

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