Guide to Hazard, Flood and Earthquake Insurance

Most homeowners and some renters have insurance to protect their home and belongings. Homeowner and renter insurance typically covers certain natural hazards, such as water damage from heavy snow or rain. As long as you can show that you have kept your domicile in good working order, you can recover the majority of costs for repair and replacement.

However, homeowner and renter policies almost never cover floods, hurricanes, earthquakes and other natural hazards, or perils, as they are called in insurance-speak. Coverage for these perils requires separate policies.

^{Sources: Lloyds of London, Insurance Information Institute, NFIP.}

While most homeowner policies cover water damage that is sudden and accidental, like damage from burst pipes or water heaters, protecting your home from flooding requires a separate flood insurance policy, as flooding from a

The potential cost of recovery from flood damage is so high that only the Federal government provides flood insurance. Commercial insurance agents sell flood insurance, not the federal government itself. Rates are based on the risk of flooding in your geographic area.

If your home falls in a high-risk flood area and you carry a mortgage from a federally regulated or insured lender, your lender is legally mandated to require flood insurance on your property. The federal government does not mandate flood insurance in a low-to-moderate risk area. However, your lender may require flood insurance as a condition of the mortgage loan, even if it is not mandated.

For those who wish to purchase flood insurance and are in a low-to-moderate risk area, your local community must be a registered participant in the National Flood Insurance Program. To find out if your area participates, check the National Flood Insurance Program Community Status Book.

Mother Nature can create a deluge anywhere, but some homes and businesses are located in a flood plain, a geographic location that floods easily. A nonprofit U.S. government group, the National Flood Insurance Program (NFIP), provides maps to show the probability of flooding in locations in the U.S.

The Federal Emergency Management Agency, or FEMA, supplies the data, derived by examining river flow, storm tides, hydrologic/hydraulic analyses, and rainfall and topographic surveys. NFIP has over 100,000 FEMA flood maps. Since flood risk can vary over time due to erosion, climate changes, development and other factors, these maps are updated periodically.

• High Risk: Special Flood Hazard Area (SFHA) — 1-in-4 risk that a flood will occur during a 30-year period, the length of a typical mortgage loan. Flood insurance is required for every SFHA-rated home and business that has a mortgage that is federally regulated or is provided by a federally-insured lender.
• Low- to Moderate-Risk: Non-Special Flood Hazard Area (NSFA) — Some risk of flooding during the lifetime of a mortgage. Flood insurance is not legally required as a condition of a mortgage.
• Undetermined Risk Areas — FEMA has not conducted flood-hazard analysis in these areas.

The price of a flood insurance policy is based on three main factors:

• Risk — The risk of flooding in your area, as defined by the NFIP.
• Coverage — Coverage can include your home structure; additional structures on your property; the furnishings and contents of your home.
• Deductible — Like all insurance, you can buy your policy based on paying an initial amount, called a deductible, with the insurance company paying costs over the deductible. The amount of your deductible is a factor in determining your policy premium.

The NFIP insures the funding for the flood insurance you purchase from a commercial insurer. The NFIP ceiling for coverage is $250,000 for the structure of a home and $100,000 for personal possessions. The NFIP estimates that nationally, the average cost of a $100,000 flood insurance policy is about $400 a year in a low-to-moderate-risk area. A homeowner may opt for a Preferred Risk Policy, which covers both building and contents. Another option offered by some insurance companies is Excess Flood Protection, for coverage beyond the mandated amounts.

The amount of money that the federal government receives as its share of flood insurance premiums represents just a fraction of the actual cost of flood damage. In the past five years, significant flooding has occurred in all 50 states, and the NFIP is $24 billion in debt. The potential for more losses is high: $572 billion worth of property in the U.S. is located in a coastal floodplain.

Congress has passed laws to address the issue. The Biggert-Waters Flood Insurance Reform Act of 2012 ordered FEMA to stop subsidizing flood insurance for businesses, second homes and residential homes that have been repeatedly flooded.

The initial impact of the bill was a 10-fold increase in flood insurance premiums. Responding to market resistance, Congress passed the Homeowners Flood Insurance Affordability Act of 2014, which delayed the new premiums for four years, and allowed homeowners to pass along lower premiums to the next homeowner.

Those who purchase flood insurance now will continue to have subsidized rates for the near future, but the long-range future of subsidies is in question.

Flood insurance can cover your home structure and, with a preferred premium, can also cover your belongings. However, flood insurance provides little or no coverage for your basement, car or truck and most outdoor living facilities and fixtures.

• Basements, regardless of risk zone
• Crawl spaces under an elevated building
• Enclosed areas sometimes called "walk-out basements"

• Moisture, mildew or mold damage that reflect poor maintenance by the property owner
• Currency, precious metals, stock certificates and other valuable papers
• Landscaping including trees and plants
• Outdoor fixtures including decks, patios, fences, seawalls, hot tubs and swimming pools
• Temporary housing expenses
• Financial loss due to interruption of business or loss of use of an insured property
• Cars, trucks and other vehicles

Not every commercial insurer offers flood insurance — but most major companies like State Farm, All State and others sell these federally-backed policies, as do many independent agents.

The NFIP provides a list of private insurance companies that sell and service flood insurance.

Other good sources to find a flood insurance provider include:

• Your homeowner insurance agent
• Your bank or mortgage lender

Most homeowner policies do not cover earthquakes and "earth movement" that result in damage to your home, related structures or personal property. Protecting your home from earthquakes often requires purchasing a separate earthquake insurance policy.

Earthquakes are the result of seismic activity: the breaking and shifting of rock beneath the ground's surface. The U.S. has approx. 20,000 earthquakes a year, many of them minor, but overall, losses in the United States average 4.4 billion dollars a year, according to FEMA, the Federal Emergency Management Agency.

Landslides are an earth movement, but are caused by erosion or water accumulation that destabilizes a landmass, not seismic activity. Landslides are not covered by earthquake, homeowner or flood insurance. Homeowners in landslide-prone areas will need to obtain a separate landslide insurance policy — but finding coverage can be difficult.

Landslides are separate from mudslides. Mudslides are soil and muck carried into or onto your home by a river or excessive rainfall. NFIP-backed flood insurance may include mudslide coverage — check your policy.

^{Sources: Insurance Information Institute}

California accounts for the majority of the country's earthquake damage cost, followed by Washington, Oregon and Alaska. Prudent homeowners in these states should consider an earthquake insurance policy.

Other U.S. locations have much lower earthquake risk, but the potential damage of an earthquake in an urban area like New York City and Boston is huge. Oklahoma and other Midwestern states have seen a large increase in earthquake activity since "fracking" oil exploration operations began.

The U.S. Geological Survey Department publishes National Seismic Hazard Maps showing seismic activity throughout the nation.

Landslides are based on the characteristics of the terrain surrounding your home. When you seek a landslide insurance policy, the insurers send a technical team to your property to examine:

• Hillsides and surrounding areas
• The condition of your property and your home's foundations
• The presence or absence of retaining walls
• The effectiveness of your drainage systems

The Golden State is number one in the nation in the costs of earthquake damage. The Northridge earthquake of 1994 caused more than $44 billion in property damage, making it the costliest earthquake in U.S. history.

Although Alaska actually has more earthquakes per year, California has 39 million people living in 13 million households, all of whom live within 30 miles of an active earthquake fault. Over the 30-year term of a standard mortgage, there is a 99.7 percent chance that a strong earthquake (6.7 on the Richter Scale) will occur.

California state law requires that insurers offer earthquake insurance. The state created a nonprofit, the California Earthquake Authority (CEA), to offer earthquake insurance policies. With CEA, homeowners can purchase a "Standard" policy that covers home, personal property, emergency repairs, building code upgrades and living expenses. A less expensive alternative CEA policy, "Homeowners Choice," covers home, emergency repairs and building code upgrades, but skips personal belongings and living expenses.

CEA estimates rates average approximately $1.75 per $1,000 in coverage. According to the California Department of Insurance, the average hurricane premium in 2013 was $676.

Landslides can be very costly as well. In recent years, landslides have caused an average of $100 million worth of structural damage in California. Average cost for a landslide policy is $4/$1,000 value, or $1,200 a year for coverage on a $300,000 home.

First, the good news: Standard automobile insurance coverage includes vehicle damage from earthquakes, mudslides and landslides.

Next, the less good news: Typical home policies do not cover earthquakes, mudslides and landslides.

• Earthquake insurance policies typically have high deductible amounts. Earthquake deductibles are usually a percentage of the cost rather than a dollar amount, with a percentage range from two percent in a low-risk area to 15 percent or higher in high-risk areas.
• Rates are less expensive for wood-built homes because wood structures tend to withstand earthquakes better than brick or stucco homes.
• Standard earthquake insurance is designed to get you back into your home, but does not cover your garage, lawn, pool or outdoor fixtures.
• In California, the California Earthquake Authority is the largest funding source for earthquake insurance. However, California state government does not fund CEA and does not guarantee additional funds in the event of a major earthquake. Simply stated, the CEA could go broke if a major earthquake hits a highly populated area.

For landslides, policies are expensive and hard to find.

In California, the CEA (California Earthquake Authority) subsidizes earthquake insurance and serves as a clearinghouse for the many commercial insurers who sell and service the policies. Here is the CEA's list of participating insurers.

In states other than California, many major commercial insurers offer earthquake insurance. Premium costs are generally much lower, too: while a California policy in a moderate- to high-risk area averages $1.75 per $1,000, coverage in lower-risk states can be as little as $.50 per $1,000.

Finding landslide insurance is difficult: only one insurance carrier, Lloyds of London, offers coverage, though policies are available from some independent insurance agents. Lloyds will only sell policies in areas that have no previous history of landslide activity.

Even with this restriction, landslide insurance is expensive: Four dollars per year per $1,000 of coverage, which translates into $1,200 per year on a $300,000 house.

A possible workaround for those seeking landslide coverage is to purchase a "Difference in Conditions" policy from a surplus lines insurer. Check with your homeowner insurance policy agent for a referral in your area.

Windstorm insurance is a type of hazard insurance that covers damages from weather events that have wind gusts of 35 miles an hour or more, including hurricanes, tornadoes and sleet storms.

A homeowners insurance policy may cover some wind-related damage but will not cover damages created by major wind weather events. High winds account for more than $1 billion in damages in the U.S. each year, mainly due to roof damage. Full-scale hurricanes, where winds can reach 200 miles per hour, are even more damaging: an average of $5.4 billion per year. In fact, hurricanes and tropical storms are the single largest source of catastrophic losses over the last 20 years.

Windstorm insurance is available in all 50 states. In states where wind damage is more common, state law may require homeowners to purchase windstorm or hurricane insurance coverage. To protect your home and family from tornado damages, homeowners who live in hurricane high-risk coastal areas or in tornado-prone areas of the Midwest are well advised to do so.

^{Sources: Lloyds of London, Insurance Information Institute, NOAA.}

How likely are you to face a hurricane or windstorm? Hurricane and tornado experts say that the public has become accustomed to relatively low levels of activity over the past 30 years — but that that trend is over, and the U.S. will experience a rise in activity for the next several decades.

For hurricanes, the Atlantic Coast season is from June 1 through November 30; the Pacific Coast season is May 15 through November 30. The peak of the tornado season is April through July, with spring tornadoes tending to be more severe.

The two most common reimbursement methods for claims are Replacement Cost Value (RCV) and Actual Cash Value (ACV). The RCV is the cost to replace damaged property. It is reimbursable to owners of single-family, primary residences insured to at least 80% of the building's replacement cost.

ACV, by contrast, subtracts depreciation from the replacement cost. For example, if flooding ruins your $500 sofa, then the RCV value is $500, the cost to replace it. You actually owned that sofa for two years before the flood so with depreciation, your ACV value might be $350 — and you have the choice of buying a cheaper replacement sofa, or chipping in a fresh $150.

Natural hazards are fickle. A tornado may touch down two blocks away and flatten a dozen homes, while your street and home escape virtually unscathed.

Although you cannot control fate, you can take a realistic look at your circumstances and do your best to lower your risk of damage from a natural hazard.

• Study maps about flood, earthquake, windstorm and hurricane activity in your area.
• Look at a terrain map of your immediate area and then examine that terrain with your own eyes, so you understand how harsh weather could alter the terrain and threaten your home.

• Look at how your home is situated — top or bottom of a hill, proximity to tall trees, drainage, isolated on your lot or close to other homes.
• Assess how to better prepare your home for harsh weather: hurricane straps to better secure your roof, improved water drainage around your foundation, security glass windows to protect your belongings and family, bolted security locks for your garage door.

Hazard insurance is weather-related, so where you live and the condition of your house are important factors in determining your policy premium. In many cases, state subsidies or lender mandates also play a part in pricing. Of course, insurance is also a commitment to pay over an extended period of time, so financial information like your credit rating play a part as well.

Factors that have an impact on your hazard insurance premium:

• Where You Live: Do you live in a low-, moderate-, or high-risk area for a natural disaster like flooding, earthquake, tornado, landslide or windstorm? Historical information will factor into the insurance company's assessment of your risk, and therefore your premium — unless state law determines the amount. Your insurer may also do a survey of your property and its surrounding terrain to determine your risk somewhat precisely.
• Your Home's Condition, Age & Construction Materials: Your insurance company will need to consider the cost of repairing your home after a natural disaster. A home constructed of wood, for instance, can withstand an earthquake better than one constructed of brick or stucco. If your home is older, was poorly constructed or suffers from low maintenance, the insurance company will determine that it is more likely to sustain high levels of damage in a disaster, and may increase your premium to offset the potential cost.
• Your Home's Proximity to Emergency Services: Disasters often mean that roads are blocked by debris, so access to emergency services is limited. The risk of additional damage to a home from fire, mildew, contamination and other post-hazard dangers is high. If you live far away from a firehouse, municipal service center or other source of help, your insurance company will likely charge a higher premium.
• Your Claims History: If you have already sustained a natural emergency like flooding or a landslide and your insurance company has footed the bill for repairs, they are likely to demand a higher premium to provide for similar coverage.
• Your Credit Score: Most insurance premiums are paid monthly. Your insurance company will check your FICO score to determine if you have a good record of keeping up with monthly payments on other costs.

• Catastrophes: Insurance Issues — The Insurance Information Institute is an insurance industry-supported nonprofit that provides a wealth of information on insurance topics, including hazard and catastrophe insurance.
• Am I Covered? — Explains what is covered in a standard homeowners policy and what is not.

FloodSmart — The U.S. National Flood Insurance Program is the nation's source of funding for flood insurance, and FloodSmart is its consumer information site. The site provides information on residential and commercial flood insurance, what to do to prepare for a flood — or to recover from one — and a find an agent tool.

• — Questions and Answers About Flood Insurance Q&As on flood insurance compiled by six agencies, including the Office of the Comptroller of the Currency, Board of Governors of the Federal Reserve System, Federal Deposit Insurance Corp., Office of Thrift Supervision, National Credit Union Administration, and the Farm Credit Administration.

California Earthquake Authority Insurance Policies — The California Earthquake Authority (CEA) is a nonprofit organization that provides information on earthquakes, including insurance policy information and tips on preparing for and recovering from a quake. The CEA also provides maps of earthquake risks in California.

• Earthquake Map — Learn the location of U.S. earthquakes over the last 24 hours. Enter your city or town into the USGS search engine to learn how frequent earthquakes strike in your area.

• National Hurricane Center — The National Hurricane Center, a division of the U.S. National Oceanic and Atmospheric Administration, provides information on hurricanes, including advisories of current hurricane risks throughout the nation. The NHC website also includes an interactive map showing 170 years of U.S. hurricane history, a handy way to determine hurricane risks in your area.
• Hurricane Timeline — A deep history of hurricanes around the world going back hundreds of years. A University of Rhode Island resource.

• Tornadoes and Thunderstorms — In an average year about 1,000 tornadoes are reported nationwide, according to the National Oceanic and Atmospheric Administration.
• Tornadoes: A Rising Risk? — Large insurance syndicate assesses the risks from U.S. tornado damage. Every year an average of 1,200 tornadoes kill up to 60 people, injure 1,500 and cause at least $400 million in economic damage in the US.