Disaster Insurance: Hurricanes, earthquakes, and floods!
January 19, 2013
I had a great conversation with twitter friend @neauxlah who shared her experience living through Katrina and subsequent hurricanes, and the insurance circumstances involved.
Disclaimer: Her experience discussed here are specific to Katrina so as she’s cautioned, many things may have changed since then. Having lived through a number of these incidents, Katrina was the worst. The most comprehensive information she’d found for FEMA wasn’t, unfortunately, available during Katrina. (I’ve updated the link from the “How you apply” page that won’t load to the Response Recovery page.)
First, meet @neauxlah: She’s lived in New Orleans for 14 years and been a resident of the Gulf Coast for most of her life. She’s worked in the insurance industry for six years and has another three years of experience in a law firm that handled all sorts of insurance claims. Both jobs taught her how insurance works, what coverages are necessary and more: she carries “ample coverage-renters, auto, medical, disability, etc and have never, ever had any problems with claims or payments.”
Her first few tweets caught my interest:
Flood Ins is a gov’t prog & is more every year to cover something that happens every 3-4 years.
(We) pay more towards our coverage so that we can use more of those Fed dollars.
As someone who received Fed aid during Katrina I had to pay that money BACK. With interest.
And of course, I wanted to know more, a lot more, about how it worked back then, more than could easily be tweeted. @neuxlah was kind enough to answer my questions:
If you have insurance you MUST recover from your insurance carrier FIRST before FEMA will even consider you…
Recovering from your insurance carrier in regards to flood/homeowners ins is an ongoing process. It takes a LONG time.
Q: Is hurricane damage is covered as part of regular insurance or does it have to be purchased as an additional rider?
A: Hurricane damage is a part of regular insurance but it has a separate deductible. It could be a flat of say $2-5,000 or it could be a percentage of the damage.
Also, most insurance companies won’t cover wind and hail damage in this area anymore and the majority of home and business owners now have to obtain that coverage through the insurer of last resort: Louisiana Citizens. Most states have an insurance organization like Citizens. They are always more expensive then a regular insurer.
Q. What’s the average or usual amount of time you should expect to put into the paperwork? And then how long does it take to get the money back from insurance?
A: The amount of time can vary depending on the insurer and the natural disaster. Most require that some form of payment be issued between 15-30 days from the date the claim (loss) was filed. However when it is a very large and catastrophic loss all of that goes out of the window. Ex: I didn’t receive any actual FEMA aid (a loan) until December and Katrina happened in August.
*Note* If you are unable to live in your home/apartment most policies cover housing. Those payments are issued fairly quickly- usually less then a week. But payments for actual losses can take much longer.
After you have exhausted all your ins THEN you can ask for assistance from FEMA in the form of a LOAN.
Q: Is there a period of time during which you must apply or do you have to prove you have exhausted the insurance somehow? Provide a letter from insurance?
A: Yes, there is a time period, usually a year or two from the date of loss, and yes, if you are a homeowner you do have to show proof that you have exhausted your insurance coverage first. That is relatively easy, though. If you manage your insurance online you should be able to print out proof of your policy limits as well as proof of payments towards your loss (or claim).
Q: What’s the usual interest rate from FEMA? How long is the loan typically good for? Do you get to apply for a variety of loan type? (ie: any kind of amount, length of time, etc?) Do you have a grace period to pay it back once your insurance comes in?
A: FEMA loans are made through the SBA and at the time I had my SBA loan my interest rate was around 3%. My loan was very small in comparison to most people and I had to re-pay it in six years vs their repayment agreements. I received my loan in November 2005 and my repayment didn’t begin until December 2006. This wasn’t a problem for me because once I received my insurance payment I just paid SBA back.
IF you don’t qualify for a loan then yes, you can apply for grant assistance. It is NOT easy, and it is NOT overnight..
FYI-most people qualify for the (low interest) loan. you have to be damn near in bankruptcy to get aid.
Q: So after exhausting your insurance and after applying for a loan you can get assistance. Is this again one of those “prove you have no means” situations? You have to pull all your bank accounts or something?
A: No. FEMA/SBA will ask about other assets during the loan process and before loaning money for your actual property they will ask for proof of the amount of the loss and proof that you have exhausted all other coverages. But I was not asked to use all of my savings towards my property damages prior to obtaining the loan. One thing I JUST realized: when I obtained my loan I wasn’t working ( I lost my job due to the Hurricane). I had NO income and they knew that! Hmm. I can only assume because of the nature of Katrina, a lot of rules weren’t being enforced.
If you don’t have insurance you pay the loan back over a certain # of years.
You can get a grant after trying everything else but that’s like six months later. Six months!
Q: Is the grant the same as aid?
A: I would consider the grant the same as aid. As with the grant they will ask for proof of your losses and once they have obtained sufficient information, the grant will be processed. I know people who rented and did not have flood insurance who received aid. Most of them did not receive any money until December/January.
Thanks so much for taking the time to answer my questions, @neauxlah!
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One of the reasons I’m so interested in disaster insurance and the practical applications thereof is, I’m just a nerd like that.
The other reason is: we live in Earthquake City, Earthquake State. This isn’t as scary as it could be, I’m not a newcomer to this sort of thing. We lived on a major faultline right through my early 20s and were close enough to feel our fair share of the Northridge quake back in the day. Shakes and quakes were pretty normal in SoCal. But just because nothing ever took us out before doesn’t mean we’re invulnerable.
And then I learned more about insurance. Once I went through all the kinds of damages that regular insurance will not cover if caused by an earthquake, I realized: well shoot. Once we own property, basically no costs would be covered in the all too likely event of an earthquake.
PiC asked me whether we should drop our earthquake rider recently, because it’s pretty expensive in comparison to our regular coverage for home or auto.
To my mind, it’s not prohibitively expensive (feels like it, but it’s not) in comparison to the risks we’re protecting against:
Walls in damages;
Cost of living if the home is unlivable during repairs;
Cost of replacing essential belongings and furniture should it be damaged or destroyed- there’s also a difference in whether the company will give you the amount it costs to replace or just the “value” of the item. In the case of furniture, we have high-original-value, low-replacement cost items in the insurance’s view. We would need to opt for full-replacement-value in order to be able to afford them again. Especially since they were almost all good opportunity buys: from Craigslist or last season clearance sales.
If we have enough money to easily replace the majority of our belongings without breaking a sweat, or enough assets to cover the cost of repairs and living expenses, then I don’t see a problem with self insuring. But until then? I’d like to have that insurance for its original purpose: protection against risk of loss.
Does anyone else live in an area where natural disasters are common enough you’d need to be insured separately? Or even when you can’t get insurance for such a thing?
Would you make a different choice about insurance?