Catastrophic coverage

What is catastrophic coverage?

Catastrophic coverage pays for damage caused by low-probability, high-cost events, such as floods, earthquakes, and hurricanes. You can buy catastrophic coverage as a standalone policy, but some providers offer coverage for specific perils you can add as endorsements to your home insurance.

Are you at risk for a catastrophe?

Let’s start by defining catastrophe. In the insurance world, a catastrophe is a natural or human-created disaster that impacts many policyholders and providers at the same time and where claims are expected to reach a specific dollar amount. These events may not happen very often, but they cause considerable damage when they do. As a result, many standard home insurance policies exclude coverage for these catastrophes:

• Floods
• Earthquakes
• Hurricanes
• Tornadoes
• Tsunamis
• Wildfires
• Volcanos

That coverage gap may be bad news if you live near:

• A floodplain
• Hurricane Alley or Tornado Alley
• The coast
• A wildfire zone

Your geography can increase your risk of facing a catastrophe. And that means you could find yourself without coverage at the moment you need it most.

But you don’t have to move or risk losing your home when disaster strikes. Many insurance providers offer catastrophic coverage, either as standalone policies or endorsements you can add to your home insurance. You can even buy catastrophic coverage for the peril you are most likely to face in your area.

For instance, floods are a bigger problem than most homeowners realize. FEMA estimates that just an inch of water can cause $23,635 in damage to just the home. The increasing likelihood of floods and cost of flood loss makes flood insurance a smart move for most homeowners.

Even if you think your home is in the clear, your mortgage lender may not. It may require catastrophic coverage to protect the investment.

How much does catastrophic coverage cost?

Costs for catastrophic coverage vary by insurer and area. In general, the greater the risk, the higher the cost. Take Florida, for example. Areas along the coast have a high risk for hurricane, flood, and earth movement, so the cost is probably higher than a landlocked area in the Midwest.

Certain locations may also have to deal with special deductibles, like Texas’s designated catastrophe area. Hurricane risk is high for the 14 counties in this area, so homeowners usually have a hurricane deductible on top of the standard flat deductible. Depending on where your home is, a hurricane deductible can be as much as 10% of your home’s insured value.

To keep costs down:

• Shop around. Different insurance providers may offer better rates. Get quotes from a few companies before you decide.
• Look for other discounts. Ask your agents about discounts on your home insurance. You may see lower premiums for security systems, fire alarms, smoke detectors, and wind mitigation.

Not sure if your home needs catastrophic coverage? A Kin agent can help your evaluate your risk and pick the appropriate coverage.