How Do Insurance Companies Handle Natural Disasters?

Whether or not a natural disaster (or what is sometimes refer to as an "act of God") is covered by insurance, and the extent of coverage offered, depends on the insurance company, the policy purchased, and the type of natural disaster.

Insurance and Natural Disasters

Flood insurance and earthquake insurance are not included in any standard policies, not even with comprehensive coverage, and must be purchased separately; you may or may not require these policies depending on the area in which you live. Other natural disasters, ranging from fire to hurricane to falling trees, may or may not be covered depending on the specific situation and the details of your policy. It’s important to read the fine print carefully. 

Open Peril vs. Named Perils in Insurance Policies

In general, property insurance is divided into two types:

  • That which covers all possible perils within a general category (“open peril,”) or 
  • That which covers only the specific perils chosen and named out in the policy (“named perils”). 

In other words, you may choose to have a comprehensive policy on your home that covers your home on an “open perils” basis, which means nearly every possible situation is covered, or you may choose to designate certain perils that you choose to insure against. Named peril policies are typically more limited, but often cheaper, and may keep you from having to pay for insurance you don’t need. On the other hand, they don’t offer the full-on security of an open peril policy.

Named Disasters Not Included in Open Peril Insurance Policies

Certain types of natural disasters are not included in the open perils policy, and must be named in order to be covered by your insurance. Just as an example: if you want hail coverage on your property policy, purchasing an open perils policy will not do the job. Hail coverage isn’t one of the many that are included under the umbrella of open peril policies. Thus, you would have to purchase hail coverage on its own, either with a named policy or in addition to your open peril policy.

 When Aren't You Covered?

Keep in mind that situations may arise in which a natural disaster will not be covered by insurance, even if the disaster is listed on your policy. This typically occurs when the insurance company reasonably believes that the damage could have been prevented by human action. An extreme example would be if you park your car under a dead tree during a wind storm, the insurance company may tell you that you could have easily prevented what happened to your car, and thus not be willing to cover the damage. Most real-life examples are a lot less obvious than this, so document your situation carefully and be prepared to argue for your coverage just in case.

Getting Help

If you believe you should have insurance coverage for natural disasters and your insurance company is denying your claim, you may wish to consult with a lawyer in your area who can give you more guidance about your rights.