Insure Your Home Against Natural Disasters

Don’t let Mother Nature become your worst enemy—make sure your home is properly protected.

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In the aftermath of Hurricane Sandy, hundreds of thousands of homeowners will be filing claims for compensation for their losses. They could be facing a second disaster if their homes weren't properly insured for wind and flood damage.

Approximately two-thirds of homeowners are underinsured for a natural disaster, according to United Policyholders (UP), a nonprofit and advocacy organization for insurance consumers. Many homeowners who suffered a total loss will find themselves in that group. "When insurance kicks in for a total loss, it's often like a faulty car: It gets road-tested and things start flying off, the parts don't hold up, and everything breaks when it gets driven at a fast speed because it wasn't built right," says Amy Bach, UP's executive director.

Bach says a number of homeowners without insurance assume a natural disaster will never happen to them. "It's human nature to live in a state of denial," she says.

[In Pictures: 10 Costs Homeowners Insurance Doesn't Always Cover]

To make sure your home is protected, review these common disasters and how to prepare for them:

Floods. Standard homeowners' insurance doesn't cover flood damage—people need to apply for a separate policy through the government's National Flood Insurance Program (NFIP). The average flood insurance policy costs about $600 per year. But that price tag is often worth the investment, as the average residential flood claim from 2007 to 2011 amounted to almost $30,000.

But Hurricane Sandy complicates things for the NFIP. Prior to the hurricane, the program had already borrowed $18 billion to pay for flood-loss claims, and there's currently a $20.8 billion government-mandated cap on the amount of money it can borrow from the U.S. Treasury. If claims from Sandy exceed $3 billion, the Department of Homeland Security would need permission from Congress to grant the program more borrowing power.

Fortunately for homeowners, Congress also mandates government-regulated mortgage lenders require homeowners living in high-risk areas to have some sort of flood insurance. However, Mark McGillivray, senior vice president of claims at Allstate Insurance, says people in low- and medium-risk areas should also consider purchasing flood insurance, as more than 20 percent of NFIP claims are filed from those sectors.

Peter Lore, Nationwide's associate vice president of property claims, warns there's typically a 30-day waiting period for coverage, meaning you can't get it at the last minute before a big storm.

You can plug in your address at FloodSmart.gov to determine how much your home is at risk for flood damage.

[Read: Sandy's Aftermath: Minimizing the Storm's Costs]

Wind. Coverage for wind damage is generally part of standard homeowners' policies, but that's not necessarily the case in certain areas prone to wind damage. Exceptions to the rule include parts of coastal states like Texas and Florida, where homeowners have to buy a separate policy. Ask your insurance agent if this applies to you.

J. Robert Hunter, director of insurance for the Consumer Federation of America (CFA), says people may overlook hurricane deductibles. When a storm is declared by the National Weather Service as a hurricane, special deductibles can apply for resulting damage. These deductibles aren't typically a set dollar amount, but are usually 1 to 5 percent of the property's value. However, in states such as Florida, the deductible can climb as high as 10 percent.

Fortunately for victims of Hurricane Sandy, the governors of New York, Connecticut, and New Jersey decided hurricane deductibles won't kick in.

Earthquakes. If you want earthquake coverage, you'll need a freestanding policy, as it's not part of homeowners' insurance.

In California, most people who purchase earthquake insurance buy it through the state's California Earthquake Authority. But these policies come with high deductibles of 10 to 15 percent of the home, which is a deal-breaker for more than 80 percent of the state's residents, says Michael Barry, vice president of media relations for The Insurance Information Institute, which aims to improve public understanding of insurance.