Homeowners vs. Natural Disaster Insurance: A Guide for Insurance Brokers and Agents

If you’re an insurance agent or broker, of course you want to do well by your clients. Therefore it's worth taking the time to understand the differences between homeowners and natural disaster insurance particularly because the pace of climate change is making the latter increasingly more relevant. (In 2022, NOAA reports “there were 18 weather/climate disaster events with losses exceeding $1 billion each” in the U.S. “These events included 1 drought event, 1 flooding event, 11 severe storm events, 3 tropical cyclone events, 1 wildfire event, and 1 winter storm event.”) By understanding the scope of coverage and policy exclusions of both insurance types, you can help your clients make prudent decisions about protecting their assets against unexpected catastrophes.‍

Homeowners Insurance Basics

Homeowners’ insurance protects your clients' homes and personal property from various risks, like fire, theft, and liability claims. The typical coverages included in a standard homeowners’ insurance policy are:

• Dwelling coverage: Protects the physical structure of your clients' homes from covered perils.
• Personal property coverage: Covers your clients' belongings inside the home, such as furniture and electronics.
• Liability coverage: Provides financial protection if your clients are found legally responsible for injury or property damage to others.
• Additional living expenses: Covers temporary housing and living costs if your clients' homes are uninhabitable due to a covered loss.

However, homeowners’ insurance has limitations when covering damages caused by natural disasters, which can leave your clients vulnerable to significant financial losses.

Natural Disaster Insurance Explained

Natural disaster insurance is designed to protect your clients' properties and financial assets from damages caused by catastrophic events, e.g. hurricanes, floods, earthquakes, etc. It complements homeowners’ insurance by covering risks typically excluded or limited in standard policies.

Examples of disasters typically covered by natural disaster insurance include:

• Hurricanes: Powerful storms with high winds, heavy rainfall, and storm surges that can cause extensive property damage.
• Floods: Rising waters due to heavy rainfall, overflowing rivers, or coastal storm surges that can inundate properties.
• Earthquakes: Seismic events that can cause ground shaking, surface rupture, and infrastructure damage.
• Wildfires: Uncontrolled fires that can rapidly spread and consume property, natural resources, and wildlife habitats.
• Tornadoes: Violent windstorms characterized by rotating columns of air, capable of causing severe structural damage.

Key Differences Between Homeowners and Natural Disaster Insurance

The main differences between homeowners and natural disaster insurance policies lie in the coverage they provide:

• Scope of coverage: While homeowners’ insurance covers a broad range of risks, natural disaster insurance specifically targets catastrophic events that cause significant damage and financial loss.
• Policy exclusions: Homeowners’ insurance often excludes or limits coverage for certain natural disasters, like floods and earthquakes. Natural disaster insurance fills these gaps by providing specialized coverage tailored to these specific risks.
• Financial protection: Combining both types of insurance can offer comprehensive protection, ensuring that your clients' properties and assets are adequately safeguarded during a disaster, regardless of the cause.

As an insurance broker or agent, consider encouraging your clients to evaluate their current coverage and consider the advantages of natural disaster insurance to ensure comprehensive protection for their properties and financial well-being. To speak with one of our natural disaster coverage experts click here.