How to Insure Against Disaster

In the wake of Hurricane Katrina, the news that the levees had broken was followed by another devastating revelation: Most of the residents of the affected area were not adequately insured against the hurricane devastation. According to Louisiana Insurance Commissioner James Donelon, only 40% of Hurricane Katrina and Rita’s victims had flood insurance; today, that number still stands at 30% in the affected areas.

According to some experts, the rest of the country is similarly unprepared for a hurricane.

“We find that people are often uninsured or underinsured,” says Ron Reitz, president of the Quality Claims Management Corporation. “They don’t have enough coverage for their building or property.”

In many cases, this gap in insurance is a simple matter of ignorance, rather than a willful decision to forego comprehensive coverage. Flood insurance in particular is never included in a standard insurance policy; it must be purchased separately through the National Flood Insurance Program, administered by FEMA. As noted by the United Services Automobile Association, these policies have a 30-day waiting period before they take effect, so homeowners seeking coverage for the tail end of the 2010 hurricane season should purchase coverage now. Flood insurance premiums for homeowners in the highest-risk areas can run more than $1,000 a year, according to NationalFloodInsurance.com. 

Meanwhile, coverage for wind damage is normally included in standard homeowner’s policies, but is sometimes excluded from policies for homes in coastal areas—the very people who need it most given their exposure to hurricanes. For these high-risk homeowners, additional coverage against wind damage could run upwards of $2,000 in premiums a year.