Natural Disaster Insurance: What Does It Cover?

Natural disaster insurance isn't an actual type of policy that you can purchase. However, your homeowners insurance already protects your property from wind and rainstorms, accumulating snow, and fire. Your homeowners insurance even extends its protection to extreme natural disasters like tornadoes, wildfires, volcanic eruptions, falling meteorites, and blizzards.

Despite the wide coverage you get from a typical homeowners policy, it's important to note that your policy doesn't cover everything. In fact, common natural disasters like floods and earthquakes aren't often covered by a typical policy.

What disasters aren't covered by homeowners insurance?

Your homeowners insurance probably has notable exclusions for flooding and earth movements. Depending on where you live, you might also face limited coverage if hail damages your property. Fortunately, there are usually other coverage options available if you live in an area that's more exposed to these types of natural disasters.

Flood damage

Flood damage and mudflows are frequently excluded from coverage by home insurers, so you'll have to purchase a flood insurance policy through the National Flood Insurance Program (NFIP) to receive protection. The NFIP, a federal program that collects research on flood damage in the U.S., works through private insurers to provide you with federally-sponsored flood insurance.

There's usually a 30-day waiting period for flood insurance. If you live in an area that's prone to flooding, you should consider purchasing a policy before the height of the flood season to avoid facing uninsurable damage to your home.

Earthquake and sinkhole damage

Most insurers don't cover damage caused by the movement of earth. This means mudslides, landslides, sinkholes and earthquakes are excluded from coverage by most homeowners insurance policies. If you live in an area where you're more likely to experience earthquakes or other devastating movements of the earth, you should consider purchasing separate earthquake or sinkhole insurance.

Insurance for mudslides and landslides is available in some states, like California and Washington, through a limited number of carriers. If you believe your property is at risk, you could benefit from coverage. However, these policies can be expensive due to how frequently these states experience landslides.

Hail damage

Your home insurance policy usually guards against hail damage. However, this may not be the case if you live in an area with frequent hailstorms, such as the Great Plains states. Insurers in these places may impose higher deductibles for hail damage or restrict payments for cosmetic damage caused by hail. This means that you may not be able to file a claim if the hail causes only superficial harm rather than structural damage.

Does homeowners insurance cover tornado damage?

Tornadoes are often covered by standard homeowners insurance policies. For insurance purposes, the wind damage inflicted by tornadoes isn't separable from that caused by smaller, more common gusts. However, due to the destructive capability of the storms, tornado insurance can be more complicated for homeowners who live in more vulnerable areas.

In locations where tornadoes are common, like Oklahoma or Texas, insurers can charge a separate deductible for wind-related claims instead of an all-perils deductible. A wind deductible may be a flat amount, but it's more likely that it'll be a percentage of your total property coverage.

Additionally, homeowners whose properties are in storm-prone areas should consider whether they have enough tornado insurance to rebuild after a complete loss. While homeowners insurance does cover tornadoes, it may only cover the depreciated value of your home and property instead of its full value.

Source: NOAA's Storm Events Database

If your homeowners insurance only covers the actual cash value, or depreciated value, of your home, you might consider upgrading to replacement cost coverage. This type of reimbursement structure doesn't account for depreciation, and you're more likely to be able to rebuild your home exactly the way it was before the loss.

Does homeowners insurance cover hurricane damage?

Your homeowners insurance likely provides partial coverage for hurricane damage. As with tornadoes, losses caused by a hurricane's powerful winds are covered in the standard HO-3 homeowner policy. Similarly, if rainwater from a hurricane damages your home, you'd likely be covered. For example, imagine that a hurricane blows open your front door and lets in rain that drenches your belongings. Standard home insurance would apply in that case.

However, insurers exclude a hurricane's flood damage from protection. If your home were destroyed by a hurricane, your insurance provider would determine whether the destruction was caused by the hurricane's wind or an accompanying storm surge before awarding any compensation. If you live in an area that experiences frequent hurricanes, you should consider getting flood insurance through the NFIP to avoid a situation in which you're denied coverage under your standard policy.

Is damage to vehicles covered by homeowners insurance?

Homeowners insurance doesn't cover repairs to vehicles that are damaged on your property by natural disasters. If your vehicle needs repairs, your car insurance would have to provide compensation to cover the damage.

Imagine that your car is parked in your garage. Say that the garage burns down during a wildfire or a tornado blows it apart. Even if the natural disaster affected your car while it was inside your garage, you wouldn't be able to make a homeowners insurance claim to repair or replace it.

How do insurance companies pay for natural disasters?

After you experience a natural disaster, the compensation you'll receive depends on the type of coverage that you've purchased. A policy's dwelling coverage comes in three forms: actual cash value, replacement cost value and extended or guaranteed value.

Imagine that your home is destroyed by a natural disaster, and you have a policy with replacement value coverage. If your claim were successful, your insurer would account for your home's depreciation and subtract that figure from your final compensation. On the other hand, a replacement value policy doesn't account for depreciation, though it only pays up to your insurance policy's limit.

To guarantee you're compensated for the full value of your home, you'll have to purchase extended replacement value. This type of coverage ensures that if surprise costs show up in reconstruction and exceed your policy's limit, you'll still be compensated.