To:          Insurance Consumers

From:      W. Dale Finke, Director

Date:       November 8, 2005

The recent hurricanes in the Gulf States should serve as a reminder to homeowners nationwide, including here in Missouri, to review their homeowner's insurance policy on a regular basis. Though hurricanes do not directly affect homeowners in Missouri, the Midwest has its own share of potential natural disasters. Taking the time to evaluate insurance coverage for personal property before a disaster hits can save consumers thousands of dollars in costly repairs. Insurance will spread the risk over many policy holders, reducing the possible financial loss for the homeowner.

It is important for consumers to remember that flood and earthquake coverage is not included on most standard insurance policies. It must be purchased as separate coverage should a homeowner want this on their residence. These types of insurance require that the natural disaster be the direct cause of the damage to the property. Natural disasters can, in many instances, trigger other events that may also damage property. One example is earthquakes causing bodies of water to produce waves.

Earthquake Insurance

While most consumers think about California when thinking about earthquakes, Missouri has been tabbed as an area that could experience large-scale earthquakes in the future. Californians indeed purchase the most earthquake insurance, but Missouri ranked third over the past few years in total premium volume . Coverage for earthquake damage is available in the form of an endorsement to an existing insurance policy or as a separate policy. Earthquake coverage pays for damage caused by the shaking and cracking that can harm homes. Damage such as fire and water damage due to burst gas and water pipes is generally covered by the standard homeowner's policy. Earthquake damage to vehicles is covered by the comprehensive portion of auto policies.

Earthquake insurance can be purchased from most insurance agents that offer homeowners coverage, and usually features a high deductible. This high deductible, usually a percentage rather than a dollar amount, generally makes rates lower. Rates will generally depend upon the probability that the residence location will be affected by an earthquake. The material that is used to build the structure can also determine premiums. For instance, rates may be cheaper for wood homes, which withstand tremors better than homes made of masonry (brick, stone, etc.). Single-story homes may also receive better rates as they tend to suffer less damage in the event of an earthquake. Age of the home can also play a part in the setting of rates.

It is important to remember that coverage of the structure and coverage of the contents is separate. Therefore, homeowners with a large value of home contents may wish to purchase additional coverage on those contents to avoid additional out-of-pocket loss. For many consumers, the question is not about whether to purchase earthquake insurance, but rather how much to purchase. Each homeowner should evaluate what the risk of an earthquake is in their area, and what financial loss that homeowner can afford.

Flood Insurance

According to the Federal Emergency Management Agency (FEMA), there are more floods than any other natural disaster in this country. Flood insurance can be purchased from most insurance agents, and is administered by the National Flood Insurance Program, a part of FEMA.

Federal disaster relief is often available to residents that suffer a loss as a result of a natural disaster. This assistance is only available if the President declares a disaster. However, over 90 percent of all disasters are not declared as such by the President. Claims on flood insurance may be paid even if a Federal disaster is not declared. The National Flood Insurance Program allows a homeowner to insure his/her home for up to $250,000 for the building and $100,000 for the contents. Most policies do not automatically cover contents with the structure coverage. Renters can also purchase coverage on their contents.

FEMA estimates that over 4.6 million residents carry flood insurance. Consumers can visit to learn more about the program and find out what their risk of flood is.

Again, consumers should remember that standard homeowner's policies do not cover damage to homes caused directly by earthquakes and floods. Because of that, consumers need to evaluate their own risk for these events to occur based upon their home location. Insurance policies should then be reviewed to determine the possible financial loss should these events occur.