When it comes to natural disasters, some properties in the U.S. are more at risk than others are. According to the 2014 Natural Disaster Housing Risk Report from RealtyTrac, more than 1,000 counties in the U.S. were at a high risk for a natural disaster, such as an earthquake, hurricane or tornado. Just under 400 counties were declared to be a very high risk for natural disaster. When you’re buying your first home, disaster preparedness is something to think about. It affects the cost of your homeowners’ insurance, which affects how much house you’re able to afford.
No matter where you live, your homeowners’ insurance policy doesn’t cover damage from flooding. That doesn’t mean you’re up a creek if your house floods during a major storm, though. If your home is in an area that has a high risk for flooding and you have a mortgage from a federally insured lender, you’re required to buy coverage, according to the National Flood Insurance Program. Although you’re not required to, you can also purchase coverage if your home is in an area with low-to-moderate risk; about a quarter of all claims come from homeowners outside of high-risk areas. The cost of the insurance is based on the level of risk, the size of the building and the amount of your deductible.
Insurers re-evaluated costs after Hurricane Andrew in 1992 and Hurricane Katrina in 2005. The cost of damage from both hurricanes was substantial. As a result, homeowners’ insurance policies in states along the east coast and Gulf of Mexico now have what are known as hurricane deductibles. According to the Insurance Information Institute, instead of being a flat amount, such as $1,000 or $550, a hurricane deductible is a percentage of the amount of coverage on the property. That means that if you buy a house in Georgia and the insurance policy provides $250,000 worth of coverage and you have a 5 percent hurricane deductible, you’d need to pay $12,500 out of your own pocket if your home is damaged in the storm.
While a hurricane deductible doesn’t change the amount of your premium, it can affect you if your home is damaged. When buying a home in a state that has a hurricane deductible, you might want to make sure you have that money in the bank just in case a storm should strike your house.
You might think that being in a disaster-prone area would keep people away. The opposite is true: High-risk and medium-risk areas tended to have the largest populations as well as the highest home values. The threat of natural disaster doesn’t deter homebuyers, but it should encourage them to think about disaster preparedness and to be financially prepared.
Image source: Flickr