2 Big Risks Your Homeowners Insurance Probably Doesn’t Cover

February 7, 2013

homeowners insurance policyHomeowners typically believe that they will be covered by their homeowners insurance no matter what the disaster is. And while it’s true that you will be protected against most disasters, there are two big risks your homeowners insurance policy doesn’t cover: floods and earthquakes.

These two threats have such potential for destruction that they are considered to be beyond the scope of a traditional homeowners insurance policy. In order to have coverage for either risk, you’ll have to have a separate policy specifically to deal with that threat.

Flood Insurance

Anytime you get a mortgage on your home, the mortgage lender will require that you have a flood insurance policy in place if your property is located in a designated flood zone. These flood zones are determined by the frequency of floods that have occurred in a location over the past 100 years. If the area is likely to be flooded during major storms it will be considered to be in a flood zone and flood insurance will be required.

That part is easy enough to understand.

Where it gets sticky, however, is when flooding occurs in properties that are not located in designated flood zones. The fact is, any area or property can become flooded if the wrong combination of circumstances takes place. All it takes is a big enough storm, like a hurricane, or the destruction of nearby flood control reservoirs and waterways.

This is actually the worst flooding outcome possible because you won’t have a flood insurance policy as a result of not being located in designated flood zone. And your homeowners insurance carrier will not cover the damage since it resulted from flooding.

You may need flood insurance coverage even if you aren’t in a designated flood zone and your mortgage lender didn’t require you to have it. Unfortunately, most homeowners – eager to keep their monthly house payment as low as possible – decide against getting flood insurance. And since the area that they live in won’t typically flood, they will feel comfortable in their decision.

But a single damaging flood can result in tens of thousands of dollars worth of damage to your property. If you are not located in a flood zone, you can obtain flood insurance for as little as $200-$300 per year. That’s a small price to pay compared to the cost of virtually rebuilding your house after a single flood disaster.

If you don’t have flood insurance because you are not located in flood zone, consider adding a policy anyway.

Earthquake Insurance

Since most areas of the United States are not subject to destructive earthquakes, most homeowners don’t concern themselves with the potential risk. If you are located in an earthquake zone, an earthquake insurance policy can be prohibitively expensive. This is especially true if you live on or near a fault line.

But even areas that are not prone to earthquakes can experience them. The threat is generally less severe than it is for flooding, but once again a single episode can cause substantial damage. The problem can be magnified by the fact that your home almost certainly has not been built to withstand earthquakes, as homes generally are in earthquake prone areas. It will take less destructive force then to damage your home than would be the case on a structure that is located in an earthquake prone area.

If you are not located in an area that’s subject to earthquakes you can obtain a policy for very little money. Sure, the chances that you will experience a destructive earthquake are slim, but all it will take is one disaster and you’ll be wishing you had coverage.

Never assume the worst can’t happen!

Flood or earthquake insurance can seem completely unnecessary in area that is not prone to either threat. But it’s another one of those items that comes under the category of it’s better to have it and not need it, than to need it and not have it.

One of the considerations when you own something as valuable as a home is the need to protect it from the most destructive of disasters. Though the threat from either a flood or an earthquake may be low in your area, the results of either event would be truly catastrophic. While you may be able to pay out-of-pocket for a tree falling on your roof, an uncovered flood or earthquake could force you to abandon the property for lack of funds to repair it.

The low risk/high cost kinds of disasters are precisely the ones you need to have insurance for. Floods and earthquakes fit easily into that category. With floods and earthquakes starting to happen in areas where they traditionally haven’t, you will do well to be prepared. Look at your insurance policy and see if you have this coverage.

Do you carry either flood or earthquake insurance, even if you don’t live in an area that is prone to either threat?


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Kevin Mercadante is professional personal finance blogger, and the owner of his own personal finance blog, OutOfYourRut.com. He has backgrounds in both accounting and the mortgage industry. He lives in Atlanta with his wife and two teenage kids and can be followed on Twitter at @OutOfYourRut.

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3 Responses to 2 Big Risks Your Homeowners Insurance Probably Doesn’t Cover

  • KK @ Student Debt Survivor

    Ugg don’t even get me started on flood insurance. Our condo association had to buy separate flood insurance for the building and it’s crazy expensive since we’re considered a flood zone (and Sandy really did a number on our building/city) so I suspect the premiums are just going to go up and up.

    • Kevin

      Hi KK–Unfortunately if you are in a flood zone, the premiums are high. I would think that it won’t be as bad in a condo (shared premium) vs a house where you’re on the hook for the whole amount yourself.


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