Insurance For Natural Disasters: Floods, Fires, Hurricanes, Earthquakes Oh My

Natural disaster insurance - Floods, Hurricanes, Fires, Earthquakes Oh My

Understanding what natural disaster insurance is and whether it's worth it is important if you live in a high risk area. Let's learn how floods, wildfires, hurricanes, and earthquakes are covered under an insurance policy for natural disasters.

I'm a multiple property owner in San Francisco which is a high risk area for earthquakes. Over the years I've felt dozens of earthquakes here. Fortunately, none of them were large enough to cause any damage. Since I moved here, I've researched natural disaster insurance for earthquakes quite a lot over the years.

A Natural Disaster Can Strike At Anytime

Before I sold my house in the Marina district of San Francisco, I always had a slight worry whether it would survive the next big earthquake. The Marina district is a highly desirable neighborhood in the north end of San Francisco. But, it is mostly underlain by saturated silts and sands that may liquefy if another large earthquake hits.

The last big earthquake in San Francisco was the Loma Prieta earthquake on October 17, 1989. It killed 63 people and collapsed a section of the Bay Bridge. In addition, it caused several buildings to burn down in the Marina due to ruptured gas pipelines.

Natural Disaster Insurance Is Expensive

However, each time I got a mandatory earthquake insurance offer in the mail, I passed. The deductible (10% of value of home) was so high and the premium ($5,000+/year) was too expensive.

I'd ignore the risk I was taking until I'd get the same offer in the mail the next year. I figured worst case, I'd have to spend $650,000 rebuilding a 2,300 sqft structure.

Now that I don't own a home surrounded by liquefaction, I do feel a sense of relief. It's as if I “escaped” almost 13 years of ownership without experiencing a natural disaster.

Fear Mongering Abounds

So many people who don't live in San Francisco constantly reminded me about the risks of earthquakes before I bought. Then after I bought, even more people from SF who didn't/couldn't buy a home tried to instill fear in me.

What gives folks? Can't you just be happy for someone's largest purchase?

As a result, I worried about earthquakes while I was in the process of selling my home. Selling a home is much more stressful than buying a home.

If you don't buy a home, there is no loss except for dashed dreams. If your home falls out of contract when selling, vultures will start circling.

Devastations seem to happen around the country every year. Thus, I've begun to wonder again if I should get natural disaster insurance to cover my remaining properties.

My homeowner insurance policy already covers fire damage. Yours may or may not.

Related: Does homeowners insurance cover fires?

Natural Disasters Affect More Than Homes

What I didn't realize was how much damage storms can do to cars. For example, it's estimated that Hurricane Harvey ruined 500,000 cars by flooding their engines. 

Similarly, Hurricane Sandy destroyed about 250,000 vehicles. And Hurricane Katrina claimed about 200,000 according to Jonathan Smoke, chief economist at Cox Automotive.

Therefore, it behooves everyone to ping their auto insurance companies today. Ask about the exact coverage you have. I bet most people have no idea how much they're paying and what it really covers.

I called my auto insurance company and was reminded I have comprehensive insurance on my new family car with a $500 deductible. This surprised me because I thought I was paying for a $1,000 deductible. At least now I know.

Comprehensive insurance should cover your car from flood damage, hail, a tree falling on your hood, and everything else you can think of. You'll usually be reimbursed for your ride's actual cash value (ACV) after you pay your comprehensive deductible.

Natural Disaster Insurance Can Save You From Bankruptcy

What's shocking is that only about 20% of the 1.6 million homes in Harris County, where Houston is located, had flood insurance, according to emailed data from the Insurance Information Institute. For those homes in “high-risk” areas, only 28% of the homes had flood insurance.

Please think about this scenario for a moment. Let's say you're a proud homeowner without natural disaster insurance. Then a natural disaster destroys your home unexpectedly. If you have a mortgage to pay, a car to replace, and a home to rebuild out of pocket, there could be no way out of this type of financial disaster except for bankruptcy. 

Besides private insurance companies, the federal government offers special coverage for high risk areas. For example, they offer flood insurance coverage through the National Flood Insurance Program at an average cost of about $700 per year. Of course, the premiums vary depending on your property's flood risk and value of the house.

For low-risk homes with the maximum coverage of $250,000 for the dwelling and $100,000 for possessions, the premiums are about $405 per year, or $452 if you have a basement. If your home is of higher value, it looks like private insurance companies may be your only option.

Here's a video that really shows how Hurricane Harvey affected one person's home and cars. The fella successfully saved three BMWs, but could not protect his home from damage.

I'm pretty sure after seeing this video, if you live in a high risk area, you'll be motivated to explore as many homeowners insurance policies as possible!

How To Decide Whether To Get Natural Disaster Insurance

Insurance companies stay in business because they collect more in premiums than they pay out in claims. It's actually a great business if you look at the profit figures of all the major insurance companies.

Therefore, as a consumer, you probably don't want to get more insurance than is required by law because you know it'll likely never be used. That said, here's a checklist that may help you determine whether getting flood or earthquake insurance is a good move.

Here are some questions to think about and helpful suggestions on how to decide whether to get natural disaster insurance or not. Whether you like it or not, climate change is affecting the decision-making process of where to own a home.

Do you live in a high-risk area? 

If you live in an eastern coastal state, Texas, Louisiana, or Hawaii, you are subject to hurricanes. Those who live west of the Rockies, in Alaska, New England, or along the Mississippi River, are subject to earthquakes.

In addition, if you live right on a coast, or in any low lying area, you are subject to floods. If you own a beachfront property, the ocean may eventually reclaim some of your property. Such property loss will hurt the value of your property, so be aware.

Basically, a natural disaster can strike anywhere at anytime.

Map of high risk areas of the United States for natural disasters
Source: Redcross, Nowhere to hide, except in Michigan! But then you'd freeze to death.

When was the last time you invested in natural disaster mitigation?

After the 1989 earthquake in San Francisco, homeowners in danger zones were mandated to “earthquake proof” their homes with stronger foundations. All new construction after 1989 also requires stricter foundation construction.

As a result, buildings are now safer than ever before. Obviously we won't know how strong our homes are until angry nature comes. But we should believe the more we invest in natural disaster mitigation, the better we will come out at the other end.

Although my new primary residence is not on liquefaction, I did spend some money reinforcing the structure and applying new bolts to the frame. In addition, the condo association at one of my rental properties is spending about $100,000 – $130,000 retrofitting our building due to an SF law.

Earthquake risk map
Earthquake risk map

Have you talked to your long time neighbors?

One of the first things I did before and after I bought my house in the Marina district was ask my neighbors how the 1989 Loma Prieta 6.9 earthquake affected our block.

One 69-year-old neighbor who has owned his building since 1975 told me not a lot happened at all. Some dishes fell off the shelves, but that was about it.

However, five blocks west of us several houses had to redo their facades due to cracks. The houses that sustained structural damage were situated 15 blocks away as they were built on top of sand.

Toppled Marina building due to 1989 earthquake
Roughly 8 blocks away from my old house in the Marina

What is the estimate of potential damages?

After speaking with my neighbors and researching the 1989 earthquake, I made a realistic $100,000 damage estimate if a similar 7.0 magnitude earthquake hits.

Then I compared that $100,000 estimate to my earthquake insurance deductible of $150,000 + $5,000 in annual premiums. Ultimately, I decided it wasn't worth it.

When you're trying to decide if you should purchase natural disaster insurance, it's important to assess realistic estimates of what a disaster might cost you out of pocket.

How big is your emergency savings?

The less emergency savings you have, the more you may need natural disaster insurance. If disaster strikes, you could borrow from your 401K, draw money from a HELOC, or go directly to friends and family.

However, you probably don't want to resort to that. One of the keys to achieving and maintaining financial independence is planning for unexpected emergencies.

This is in addition to everyday budgeting and retirement planning. Otherwise, all of the wealth you've created could be greatly jeopardized.

Tornado risk map of United States
Tornado risk map

How dependent is your retirement on your home?

Our homes are often our largest asset. Thus, there's no doubt many people count on their homes to provide rent-free security once the mortgage is paid off. Or rental income if they are a landlord in retirement.

Some may even depend on their homes to do a reverse mortgage for income. Whatever the case may be, the higher your home is as a percentage of your net worth, the more you need to consider getting natural disaster insurance.

Related: What Is The Average Net Worth For The Above Average Person?

Flood risk map of the United States
Flood risk map

How much equity do you have in your home?

This is probably the only situation where having little to no equity is a good thing if a natural disaster strikes.

Potential disasters are one of the biggest reasons why people should not pay down their mortgage. If you had the ideal mortgage amount of $1 million, your bank ends up eating the cost if you run away.

Find out if you live in a non-recourse state here.

What If The Natural Disaster Is Really Bad?

The only positive out of a really bad situation is that the Federal Emergency Management Agency (FEMA) might step in to provide grants for emergency repairs and temporary housing.

Meanwhile, the Small Business Administration (SBA) may offer up to $200,000 in low-interest loans for rebuilding.

Rebuilding costs soar during times of emergency. This is largely due to an upward shift in the demand curve. Inevitably, there may also be price increases by suppliers of materials and services to help mitigate such a surge in demand.

Lines for gas at the pump may last for hours. Meanwhile electricity might not come back on for weeks, if not months.

The worst feeling is losing everything and not knowing if you will ever recover if you don't have natural disaster insurance. Then, the second worst feeling during a disaster situation is having insurance, and not knowing whether you will ever collect.

Here's a video highlighting what type of damage Category 1 – 5 hurricanes can do. For those who are investing in heartland real estate, it's best to bake in potential natural disaster damages into your returns.

Build Goodwill With Your Insurance Provider

It's unfortunate to hear so many frustrating stories about insurance companies not paying out a claim when something bad happens. The only thing I can recommend is to go with an insurance carrier that's been around a long time.

In addition, select a provider with a healthy balance sheet. Use them for multiple financial products to build good will so they decrease the chance of screwing you.

For example, you may want to bundle your auto, property, umbrella policy, and flood insurance together. Your agent will love you, and you will be tiered as a more valuable customer. Thus, they should give you less grief with claims, and should also give you the best rates.

Once, I filed a $7,500 claim for a lost watch (lost it on the beach or somewhere in Oahu). I spoke to the personal property insurance agent for 10 minutes, answered questions, and got a check for $7,500 three weeks later.

They didn't give me a hard time because they've been making lots of money off me for the past 20 years.

More Assets, More To Worry About

With record breaking temperatures, massive wildfires, and violent hurricanes each year, there's something to be said about having only one car and one house. Otherwise ongoing maintenance and insurance costs really start putting a damper on your sense of freedom.

Get Insured Today

If you're in an area prone to natural disasters, explore as many homeowners insurance policies as possible. And look into the costs and coverage of natural disaster insurance.

Compare the insurance premiums to the cost of a total rebuild and make a calculated decision. There is no such thing as retroactive insurance!

Each year that goes by without paying insurance premiums is a win. But after many years of winning, you might want to use your winnings to sleep well for the rest of your life.

Related posts:

How Does An Umbrella Policy Work?

A Preliminary Guide To Auto Insurance

The Ideal Amount Of Homeowners Insurance To Protect Your Family

Readers, do you have flood or earthquake insurance? If so, what is your coverage and monthly premium? Has your home or car ever gone through a natural disaster? What was the cost to rebuild/replace? 

Note: You can't really game an insurance company and get flood insurance right before a big hurricane hits. You usually have to wait at least 30 days before the insurance kicks in. 

For more personal finance content, subscribe to my free weekly newsletter. I’ve been writing about living the lifestyle you want with the money you have since 2009.

About The Author

90 thoughts on “Insurance For Natural Disasters: Floods, Fires, Hurricanes, Earthquakes Oh My”

  1. I live in Houston and was at ground zero for the flooding. We are near a bayou and the intentional dam releases by the Army Corp of Engineers flooded our house with 7 feet of water. We also lost both cars. The water in our house just went down a few days ago – after it was full of disgusting, scummy water for two weeks. Fortunately we do have flood insurance, but it is limited. It does not pay replacement cost on things (it pays a set amount) and does not cover relocation costs. We are now paying a mortgage for an unlivable house, trying to replace one floor of belongings, buying two replacement cars and paying for a rental townhouse.

    Here is part of our story:
    Life Changes Overnight – Surviving Hurricane Harvey Dispatch #1

    Cat rescue and grocery shopping – Surviving Hurricane Harvey Dispatch #2

    Stuff is not supposed to matter, but it kinda does… – Surviving Hurricane Harvey #3.

    Water Taxi and Mandatory Evacuation…It’s Not Over Yet. Surviving Hurricane Harvey Dispatch #4.

    1. Those are some incredible pics. 7 feet high is crazy. Very sorry for your loss. Where are you living now while the house is being repaired?

      Glad you have at least some flood insurance to defray costs!

      I read some story in the NY Times about how nothing will stop the Houston real estate market. Do you feel the same way?

  2. You recommend taking pictures when walls are open. I couldn’t agree more, and for reasons some may not consider. We recently had a professional grade range hood installed over our cooktop and hired a mechanical contractor to plumb the exhaust piping through the roof (we previously had a microwave oven with a built-in hood that recirculated the exhaust into the kitchen through charcoal filters, which has become unacceptable as I have begun to suffer from severe chemical sensitivities). There was a question as to whether there would be a truss in the way above the ceiling, requiring expensive rerouting of the piping, and with 20″ of cellulose insulation in the attic, I really didn’t want to crawl up there to see.

    While debating how to answer this question it occurred to me that I had taken pictures when I installed vented aluminum soffett in the eves when I had a new roof installed a few years ago. Those pictures showed me exactly where the rafter tails are and I was able to determine that there would be no interference for the piping. This in turn enabled the contractors who submitted bids to give me precise estimates rather than a price range because of structural uncertainty.

  3. Frank Vanderpool

    Just wondering if hurricane insurance covers storm surge damage? A lot of Katrina claims were turned down due to flood damage being reclassified as storm surge damage. I had never heard of storm surge damage before Katrina.

  4. As a commercial insurance broker I speak daily on these issues with clients though in the context of commercial operations rather than personal. As an ounce of prevention is worth a pound of cure, I would note that the largest claim cost of a seismic event isn’t the earthquake itself but the fires that follow.

    A seismic gas shutoff valve is an affordable mitigation device particularly in the context of earthquake premium. While it doesn’t prevent the quake it does cut off the gas line(s) when a seismic event occurs which may substantially mitigate the claim cost.

    Sam, if you’re ever interested in modeling your properties for catastrophic events just to see what the probable maximum losses look like over various time periods, I think that would be a good exercise for you to share with your readers and I would be happy to facilitate.

    1. Good tip on the seismic gas shutoff valve and highlighting that it’s really the fires that ensue that cause the most damage.

      I think I do have seismic gas shutoff valves on all my properties, but I will double check anyway.

      Also, how quickly does earthquake insurance go into effect after you call and agree to pay? It looks like flood insurance takes 30 days to go into effect after you sign the docs. Thx

      1. There’s no waiting period for earthquake like there is for flood. However, most carriers put a moratorium on binding coverage post-earthquake for various periods due to the likelihood of aftershock.

        Moratoriums are the most common mechanism used by insurance carriers to protect themselves. If for some reason you’re in Florida right now and are looking to cover wind, I’m willing to bet big dollars that there’s a moratorium on new wind exposures.

        Not trying to get into semantics but I noticed you mentioned calling and agreeing to pay. I ALWAYS recommend that when you are looking to bind coverage you do so via an email and then follow up with a phone call. Having the request for coverage in writing can save a lot of unnecessary questions should a claim arise – particularly a claim due to a catastrophic event.

          1. I can’t think of anything truly egregious on the property and casualty side but often hear of health insurance carriers doing egregious things for not properly having some piece of paperwork. I have many clients that feel they should have been paid out (I often get clients when their previous broker wasn’t outlining coverage correctly) but the reality I find is that when an insurance company doesn’t pay out it’s because the broker didn’t properly advise the client of the terms of the policy.

            One example of that which comes to mind is terrorism coverage which is most commonly procured through TRIA, a federal backstop for terrorism claims. Many individuals were surprised after the Boston bombing that TRIA didn’t apply as it was never certified by the Secretary of the Treasury. While that precluded TRIA from applying, the failure to certify the event as an act of terrorism ended up helping out those who didn’t have terrorism coverage as a certified act of terrorism is an exclusion on many policies.

            For commercial clients I see a failure to understand how to properly calculate the cost of a business interruption as being a serious bone of contention following a major loss (e.g. earthquake hits San Francisco and your factory can’t get widgets for three months yet owner wants to keep employees on payroll, etc…) and data breaches being two areas where insurance company denials or limits on coverage cause heartburn for policy holders.

  5. Personal Alpha Investments

    Great article!

    Out here in Canada, I am careful about getting myself insured for flooding. Although, I don’t own any real estate, this is something that is always at the back of my mind. Finding a good insurance provider who’ll honour its end of the bargain is equally important!

    On another note, I absolutely abhor people instilling fear in you and or showing you down, just because you have something they don’t. They feel better about themselves while “cautioning” you. Its their attempt to one-up you!


  6. Great article. I live in Wisconsin and live in an area that is pretty “hilly” so we don’t have to worry to much about tornados or any other major disaster – standard home owners insurance coverage. Our biggest threat is getting snowed in for a while in the winter or subzero temps.

  7. I was in middle school when the ’89 quake happened. Fortunately our neighborhood in the southern part of SF only had minimal damage and power outages for most of the night. About 30 minutes after the quake, we turned on our battery powered radio and listened to the news about the effects the quake had on the Bay Area. They described the collapse of the Bay Bridge, postponement of the World Series game between the A’s and Giants, the freeway over in Oakland collapsing and sandwiching cars, and the numerous houses over the Marina District in ruins.
    It just goes to show how natural disasters especially an earthquake can quickly destroy properties. Thanks for this reminder Sam, hopefully people that live by areas where natural disasters are prone to happen either have insurance or have enough saved for total rebuilt.

  8. Sam, your posts are so timely. Thank you for sharing on this topic because I feel your readers can truly benefit from insuring themselves. It only takes one catastrophe to wipe out a lifetime of savings. I thought I was the only one paranoid, because I insure our family up the wazoo: laddered 20-year term life insurance, disability insurance, malpractice insurance for my wife, maxed out auto insurance for both vehicles, premium property insurance with all the bells and whistles, and a $4MM umbrella insurance to cap it all off. The goal isn’t necessarily to be rich, but not to be poor!

    1. That’s a great line at the end. And if you’re already rich, or on your way to riches, might as well insurance against going heavily in reverse.

      It is depressing to think that almost 1M people in the Houston area don’t have insurance after all that has happened. I wonder how much of the $7.4B Federal grant money will help them.

  9. I don’t have flood or earthquake insurance as neither is a risk for me. This summer, I did have a large tree branch fall on the house, insurance covered the clean up, but they did not cover the removal of the rest of the tree, which carried a $4,500 price tag. Its also wise to make sure your home and auto are through the same company, years ago my house was broken into and spare car keys were stolen. I had different insurance companies and neither would cover getting new keys which are quite expensive.

    1. Definitely helpful for one insurance company to cover auto and home. So much easier when the right hand talks to the left hand. Build goodwill with the insurance company who’s making lots of money off you!

  10. A horrifically worrisome, anxiety inducing, but an informational read Sam. I was doing the math in my head for earthquake insurance in the Pacific NW. We are indeed near a sleeping fault line for our rental property. Oh and not to mention the sleeping volcano. These are the thoughts that give a person nightmares.

    I wonder what the threshold is for FEMA to step in. And I definitely didn’t know about the SBA grant. It’s nice to know there is financial help available for those caught in the wrath.

    Your earthquake insurance quote is so high! We pay $250 dollars a year for ours, with a $20K deductible. We purchased it for ease of mind. We have no other specialty insurance.

    I wanted to add if the home is retrofitted they give you a discount. Retrofitting is very pricey though – about 11K for our little cottage.

    Finances aside, my worst nightmare is not my possessions but if something happen to my husband. We have an emergency kit at home filled with stuff in case food runs low or electricity goes out for weeks and months.

    1. $250 a year is so cheap! However… $20K deductible… hmmm.. not too high either. It’s unlikely you will have to spend more than $20K to fix your house in an earthquake, but $250/year is cheap for absolute disaster insurance.

  11. Money Miser

    We live in an active earthquake area too. Richmond, BC is particularly susceptible to an earthquake and could actually sink below the water level in the event of a big one, which would be devastating for hundreds of thousands of people.

    This is all just another tick box for renting, so in that regard I’m pleased I don’t own any property.

  12. I live in Houston. Not in a flood plane. Flood insurance was a no-brainer for me. Like a previous comment said, there are lots of scenarios to flood, not just hurricanes. What I think about most is the rapid development/redevelopment in the city that can potentially have major effects on drainage patterns. Doesn’t matter if you’ve never flooded before…a new strip center around the corner or a rebuilt house on the lot behind you can change everything.

  13. FYI, a 100 year storm does not mean it’s supposed to occur once every 100 years. It actually means that there is a 1 in 100 chance that it will occur in a year. Likewise, a 50 year storm means there’s a 1 in 50 chance that it will occur that year. So technically, you can have 100 year storms occur over consecutive years.

      1. Money Miser

        If it is a one in one hundred year storm the odds are 100/1 for each year. For that to happen 5 years in a row would be 10,510,100,501/1. Now I’m not sure how you go about calculating the odds of five occurrences in 10 or 20 years, but they’d obviously be a lot lower.

        1. Wouldn’t the odds go up if 5 occurrences had more time to occur than in 5 consecutive years? The odds of 5,100 year storms happening in 1,000,000 years has to be greater than 5, 100 year storms happening in 5 years.

          Either way, there seems to be a clear disconnect between the descriptions and occurrences of these storms.

          1. Money Miser

            I think you have your odds confused, or at least the terms.

            Higher odds are less likely, and lower odds are more likely. For a 100/1 storm happening 5 years in a row, the odds would be enormous (i.e. extremely unlikely). For five 100/1 storms happening over say 100 years, the odds would be much smaller (i.e. much more likely).

  14. I think you were smart to reduce your risk in San Francisco. You don’t want too much of your wealth concentrated in one town, and when the Big One happens in SF it will be orders of magnitude bigger than the 1989 earthquake.

    Here is a link to a good website for various earthquake risks (landslide, shaking, etc.): . You can even choose which fault you want to go first! Fun.

    The USGS has a wealth of maps for risk assessment for the whole country, though I find their website difficult to negotiate.

    On the upside, if your house does survive the Big One, then demand for remaining housing goes through the roof. Then you can sell and move to Hawaii. Plus, I pay for earthquake insurance in San Francisco. Every year I think about canceling, but I am afraid that will somehow alter the time/space continuum and trigger a major earthquake, so I keep paying. So I think you are safe for now.

    1. How much do you pay for earthquake insurance and what does it cover?

      The opportunity to buy in SF is right after an earthquake for sure, as prices will likely drop 10% – 15% immediately. But a lot of people have been waiting for 28 years, and in the meantime, prices have surged.

      1. Not the original poster, but we pay about $1100 a year for earthquake insurance in SF. 10% deductible. Our location is midtown terrace, near twin peaks.

        1. Not bad! How much is the value of your house worth approximately? I’m thinking because my house was in the Marina district, and it was maybe more expensive, but my premiums were much more.

      2. I live in your neighborhood, Sam, and pay about $3000 per year in earthquake insurance. 15% deductible, $651k for dwelling, $100k personal belongings, $15k loss of use, and $10k building code upgrades.

        The other kicker about natural disasters is that the rebuild costs and timelines are astronomical–much higher than we would expect in a normal market. For example, Christchurch took about 5 years to be rebuilt after the 2010-11 earthquakes. Eerie seeing the abandoned downtown years afterward with intact-appearing buildings but all the underground infrastructure destroyed.

  15. Ms. Raggedly

    I remember my city had a massive flood a couple years back. I was getting calls from relatives in Europe asking if we were okay and safe – thankfully we live up on a ridge, and if the water levels are coming up that high, the planet’s imploding and flooding is the least of the problems. It was heartbreaking to hear of all the insurance companies that didn’t pay out claims because the flood was ‘an Act of God’ and not covered. We helped out as much as we could, volunteering and making food, but it was a tough time for most people.

  16. Working Optional

    I’d love to get flood insurance – only if it wasn’t so expensive :(. I’m outside the flood zone but still within 5 miles of the ocean. Same for earthquake insurance – premiums rise each time I check.

    So worst case, if its a tsunami or similar we may be somewhat out of luck. Luckily our retirement plans don’t include the home equity so worst case we’ll figure out what to do at that time and figure out a way to pay for the rebuild cost.

  17. Albert @ Mr. Smart Money

    I actually live in Florida, and own two properties here. There are already mandatory evacuations being ordered “just in case”.
    Already called insurance, and took pictures of my belongings should the worst happen.
    Fingers crossed :(

  18. Earthquake insurance can be very expensive. High premiums, high deductibles but if you live on or near a fault line or on anything other than bedrock, I would agree with Sam that I’d rather sleep at night. My wife and I read about a tall building in San Francisco that is sinking and leaning and can only imagine how those homeowners must feel even with earthquake and flood insurance.

    On a separate note Sam: ( fyi: I work in the spirits industry): read the Campari results of early August. Your Gin investment has an earn out that may well be paid if targets are reached (growth is looking good if it continues at the current double digit rate) in the coming three years. Approx 2/3 of the of the sale (80m Euros) proceeds were paid out already with 1/3 due (29.4m Euros) on the earn out. That could change your numbers for the ROI for you. Cheers

    1. Yeah, the Millennium Towers sinking is such a huge debacle. Decade long lawsuit I bet. It highlights the GREAT UNKNOWN even after using the best structural engineers. It may also show lack of thoroughness by the SF planning department and inspection department who LOVE to give mom and pop homeowners a hard time and charge out the wazoo for permit fees. I’ve got so many stories to tell. The sinking tower may be their biggest comeuppance if found negligent.

      I think one of the units did sell recently for about 30% less than purchase. Meanwhile, the city still taxes the units at full value + inflation.

      I’m looking forward to a bump in payout for Bulldog Gin. But I won’t count on it. Too bad I didn’t invest in Casas Amigos! Sigh. At least I didn’t get a bagel.

      1. Paying full taxes on a sinking investment – literally!

        Don’t we all wish we had invested in Casas Amigos that sold for 1 Billion USD. Cheers to George Clooney and Rande Gerber. Yeah- don’t count on the bulldog earn out. Small brand for Campari with high targets to reach = high risk for the earn out. Hope it pays something for you though eventually. Maybe a little extra 529 money for your son.

  19. We have earthquake insurance. It’s not too expensive because we haven’t had a big earthquake here for a long time. The Cascadia quake is overdue, though. It’s going to be huge when it hits. The potential is even bigger than the San Andrea fault earthquake. I hope it doesn’t hit for 12 more years. I plan to be out of here when our kid graduate from high school. Also, diversifying with real estate crowdfunding. I’m nervous about having so much of our net worth in local real estate.

    1. I read your comment Joe and it’s interesting the earthquake insurance companies take duration without disaster into account. The earth needs to release pressure right? Shouldn’t the insurance companies be more worried as time passes and pressure builds? I’m not going to questions the low rates tho, ours is manageable too :)

  20. I am in a fairly low risk area when it comes to natural disasters, but we did have to file a home insurance claim 5 days after we moved into our first house. We moved in during the worst winter for snow in Boston’s history, and our house had an ice dam. We had water running from our attic, through our bedroom, onto the first floor, and into the basement. It was a wake up call around knowing what was covered and how our insurance works.

  21. Over and over I have looked into flood insurance and talked to insurance agents about it. Most know absolutely nothing about the coverage. I’m not in a flood plain and am on high ground, but am fully insured for everything yet I still haven’t purchased. I live in Michigan where most of us have full basements with many of them completely finished and decked out. In a flood they will be a complete loss, but the national flood insurance will not cover basement finishes or furnishings – only “fixtures” such as the furnace. Private, supplemental flood insurance follows the same exclusions. Unless you have a unique or multi- million dollar home justifying a custom policy with Lloyd’s, your investment won’t be covered and most regular policies don’t cover “flood” damage either.

  22. I’m not in the flood plain, but I’ve also been paying attention to the city infrastructure improvements over the decade I’ve been here. I have renter’s insurance, but that does not cover flooding. My business has commercial & professional liability insurance and is protected in an LLC. The hardest thing for a disaster hitting me would be my business. I’ve gotten as much of it into the cloud as I can. And multiple types of backups.

  23. Grant @ Life Prep Couple

    Insurance was the topic of conversation yesterday at lunch. I was proposing that it might be wise to cancel home insurance once your house is paid for. Out of 9 people in the room no one had ever filed an insurance claim for anything home related.

    I live in Raleigh, NC which is pretty low risk when it comes to natural disasters. I doubt I would be willing to roll the dice in a higher risk area.

    1. Ms. Conviviality

      We are probably one of the rare people that don’t have any insurance on our primary residence. We had previously gone through some of the questions Sam posed, for deciding whether to get natural disaster insurance, but in our case it was for deciding to cancel the property insurance. Our home does not have a mortgage by the way.

      Q. Do you live in a high-risk area?
      A. No, we live in central Florida so when hurricanes do pass through the winds have reduced enough where the biggest risk is falling tree limbs.

      Q. When was the last time you invested in disaster mitigation?
      A. Being that our house is about 40 years old, the building codes were stringent enough to promote wind resistant construction. We also made sure to cut down any weak trees on the property and to not have any limbs over the roof.

      Q. Have you talked to your long time neighbors?
      A. No, but we have owned the property long enough (13 years) to know that even with the worst torrential rains there is some flooding but water has never gotten within 25 ft of the house. But, now I’m curious about what our neighbors might know that we don’t…

      Q. What is the estimate of potential damages?
      A. Worst case scenario is that the whole house is gone. We wouldn’t want to put in the money to build it back up to the 1,600 sq ft of living space. We would be ok with building a tiny home and living in that instead.

      Q. How big is your emergency savings?
      A. We have enough to build a tiny home. Part of the emergency plan is to move into our condo while a new home is built. Of course we’ll need to wait for the end of the lease with the condo tenant so we could stay with the in-laws in the meantime.

      Q. How dependent is your retirement on your home? How much equity do you have in your home?
      A. Our home is where we plan to live for free during retirement so I don’t see the equity as beneficial since we don’t plan to sell/downsize. Though, in the case of a reverse mortgage that is money lost since we could have used the equity to live it up even more. Hadn’t thought about reverse mortgages as an option.

      The main reasons we decided to not have property insurance is because the risk of something horrible happening is slim, we have the skills and desire to fix any damages ourselves, and worst case scenario would be living in a cute tiny home.

        1. Ms. Conviviality

          We don’t have a mortgage. Florida also requires insurance when there is a mortgage.

      1. Ms. Conviviality

        I might have jinxed myself. Hurricane Irma created a lake of our property. It’s odd looking out from the house and feeling like an island with 7 acres of water in every direction, with some spots as deep as 4 ft. Luckily, we have a multi-level house; 5 levels to be exact so there is basically 1-2 rooms on each floor. The ground floor has a bedroom and half bath which flooded to 24 inches. It’s been 3 days and water is now at 19 inches. Items we will need to replace are central A/C and ductwork, water heater, drywall, and electrical. These repairs will surely cost more than the savings we had from not paying for insurance for 13 years. I’m changing my stance about flood insurance: Get it! Especially so if the property is mapped in a flood zone because it was done so for a reason, even if you have never seen water get anywhere close to the house.

        By the way, we did get to talking with our next door neighbor, whose family has lived on their property for three generations and they had never seen as much water as we got with Irma. I suppose they’ll have the information now for any future residents after us.

        1. Oh no! Sorry to hear about this :( I hope it doesn’t cost too much to fix.

          I do wonder though, what are the chances another Hurricane Irma like storm will be experienced in your area? I know a “500 year storm” doesn’t mean it only comes once every 500 years… but all the same, could a storm as big as Irma come back? Hard to say.

  24. The geologist in me can’t help herself. Liquefaction is a process that occurs as a result of an earthquake or other seismic activity (blasting, bombs etc, not just earthquakes). The Marina district is underlain by saturated silts and sands not liquefaction. When a seismic event occurs it liquefies the ground and by redistributing water in the subsurface, making everything more unstable. Sand on its own has a very small cohesion coefficent and any heavy weight will push it out of the way; when you add water that coefficent is zero. Think about when you are standing in the surf and after you stomp your feet a few times suddenly your feet are a few inches under the sand.

    One other thing to put out there for everyone as they read this that if you are in the floodplain of a creek or river you should review your options for flood insurance. Events like Hurricanes and Earthquakes get lots of attention but all it takes if your house is in a flood plain is a blocked culvert downstream of your property for your house to flood. FEMA won’t care because the disaster is only at your house. Don’t figure because you live in an inland state that you shouldn’t at least review your property details and make an informed decision with respect to insurance and property improvements.

    1. Thanks for sharing and your thoughts on living near a creek, river, or lake.

      How deep does a homebuilder have to dig those steel pillars into to gain some protection? What if there is no bedrock for 100 feet down? Cost will be prohibitive no? Thoughts on having ocean front property? How do those houses on stilts right on the beach survive for years without shifting?

      1. As a geologist that also spent 6 years working in the geotechnical (foundation/drainage design) industry I can answer some of your foundation questions. The depth of the steel pillars varies from site to site. Ideally you would look at the friction coefficient of the soils you’re installing them into and calculate how long they need to be for that specific site/friction coefficient. If you want to get past the soils that qould liquefy, you would need to go to bedrock which could be very, very cost prohibitive. If no bedrock for 100′ down, you could end up with very long piers/beams that could still snap in an earthquake, or go witha different foundation design.

        Another thought would be building a raft style foundation similar to some buildings you see in Japan. These would still be affected by liqeufaction, but the theory is the structure moves as a whole. So your home may end up leaning after a quake, but because it moved as a whole, structurally it would be “fine”.

        The coast is very dynamic and never stays in the same place. Years in our lifetime are a blink in geologic time, maybe a half a blink. Ultimately, coasts erode, move, shift, and those houses end up in the ocean or inland depending on where it goes. Since we (humans) keep rebuilding the beaches they appear to stay in the same place, but look at the houses on the cliff around La Jolla and that area of CA. They used to have a backyard before you got to the cliff and now the cliff is at their foundation or close to it.

        In Nature, nothing stays the same for very long. We’ve had warmer climates than the one we’re in, we’ve had much cooler climates, higher sea levls, lower sea levels, it all changes. We have a tendency to look at things in such a tiny time frame that it seems like they generally stay the same when in reality it’s quite the opposite.

        1. Thanks for the insights! Very helpful. I do wonder what will happen to ocean front property 50-100 years from now. Rising tides, tsunamis, eroding sands.. hmm.

          What I realized after my selling my house in the Marina is that all my properties are now on a hill, safer from floods. But not safe from earthquakes and fires. At least homeowner insurance covers fires for the most part.

  25. We live in Houston, outside a 500 yr floodplain and are one of the rare ones that have insurance. During Harvey, we watched the water get within 2′ of our foundation before it stopped rising. While talking to our neighbors and among our neighborhood facebook group, we realized those stats you quoted are pretty spot on. Of the 6 neighbors on our street we talked with we were the only ones with insurance. On the Facebook group, only 1/4 of the people that were responding to an insurance thread said that they had insurance and some of them were going to cancel it after not flooding this go around.

    Ours is only ~$300/yr and covers $150k structure and $60k property. We figure since we’d be replacing the lower 4′ or so of drywall, cabinets, appliances, and floors, we wouldn’t need more than that. We did drop it for a couple of the years we were there, but after experiencing high water in the streets and 2 500 year floods in 2 years we decided we’re idiots for risking paying for those repairs out of pocket just to save $300.

    1. $300 a year is so cheap! Glad nothing bad happened to your home. I was on hold with my insurance provider for 1 hr 20 minutes before giving up to see what my latest rates are. It’s nuts out there.

      I do wonder, and if anybody has any idea, can one get flood insurance for one year knowing that within several days their area will get pounded by a huge hurricane like Irma.

        1. Is this a federal law? I tried to get through to USAA to verify. So I guess timing wise, the homeowner can try and get us one month before the hurricane season to get flooded shirts to verify. So I guess timing wise, the homeowner can try and get us one month before the hurricane season to get flood insurance.

          1. Yep, I don’t know if it’s a law, but our insurer told us 30 days as well. I’m guessing it’s to keep people from calling to get flood insurance as a storm enters the Gulf of Mexico or their streets start rising.

            Looking at rainfalls in Houston, the biggest floods have been April and May which is outside of Hurricane season. 2 of our 3 “500 yr floods” hit on Tax Day and Memorial Day.

    2. Harvey was actually a 1000 year flood.
      It came within a front step of reaching my front door.
      No flood insurance and no one on my block has it either.

      1. Yes, and if you check FEMA’s information, we might note that 100-year floods are actually expected to occur much more often. “A 100-year flood is not a flood that occurs every 100 years! In fact, the 100-year flood has a 26 percent chance of occurring during a 30-year period, the length of many mortgages. The 100-year flood is a regulatory standard used by Federal agencies and most states, to administer floodplain management programs. The 100-year flood is used by the National Flood Insurance Program (NFIP) as the basis for insurance requirements nationwide.”

        1. “we might note that 100-year floods are actually expected to occur much more often”
          I don’t really see how your FEMA-quote supports that statement.
          If anything, I’d put an Average Joe’s uninformed guess about the likelihood for a 100-year flood to occur in 30 years at 30% (30*1% yearly chance).
          But the math puts the likelihood at slightly less than that.
          And the likelihood of a 100-year flood occurring in 100 years at all is merely 63%.

  26. I’ve got no problem paying for insurance and not using it. Insurance is actually pretty cheap relative to the benefits you get. I’d move the emergency and other liquid savings up the priority ladder though. Having cash right after the emergency, instead of waiting for an insurance check, can get you higher on the priority list for a builder. Beyond the added construction costs of the shifting demand curve, the wait can be costly, both personally and financially. Imagine not being able to secure a builder for six months or a year. Where do you live? Can you find something within a reasonable distance to work? How about your kid’s school? Having $50k, $100k, or more in cash can get a big chunk of the down payment done and the builder secured. Hopefully you can get back in your home within a few months, instead of years.

  27. Over here in Dallas, our biggest worry is hail and the occasional tornado. My house got hit with hail a few years while I was home, the hail was large apple sized if you could believe it. Destroyed the roof and my wife’s car. Insurance covered it, and my deductible was 1% of the value of my coverage. I pay about $1K per year for comprehensive on house alone.

    People often over-insure (sometimes under-insure) by using the market value of their home as the coverage amount instead of the cost to rebuild which could be quite different. In my case, my coverage amount is below the value of the home since the land cost is high.

    I agree it’s become a liability to be tied to your home these days with all the natural disasters, makes for a good argument to be a permanent nomad. Not something that appeals to most families.

    1. A 1% deductible is low. Seems quite affordable. But then again… a 1% deductible on the home I just sold would be $27,400…. and it doesn’t cost more than $15,000 to reroof my house! Hmmm… so maybe I would pass again.

      Just gotta do the math folks! Are you bullish on Dallas property? If so, for what reasons?

  28. I’m glad you have sold your property and no longer feel stressed out about such a disastrous possibility.

    Mr. FAF has been thinking about moving to CA, and one of my biggest concerns is exactly what you just mentioned on your post: earthquakes. I have never experienced an earthquake in my life and really don’t want to see it.

    We live in an area in DC where we don’t need any natural disaster insurance, but you never know when mother nature strikes. @_@

    1. I’ve probably experienced around 30 earthquakes in my lifetime (used to live in Taiwan and Japan). The biggest was around 6 or so. It’s a shaky movement for seconds, but nothing as alarming as a CAT 2+ hurricane that lasts for hours.

      I guess I’ve become used to the quakes.

  29. Apathy Ends

    We only have tornados to worry about (at least for major structural damage in MN) – but our homeowners covers that.

    We had a nasty storm come through this year and ruin our siding and roof (plus every tree and shrub in the neighborhood) – the money aside, just the time to deal with getting everything back to normal is going to be a painful experience – hopefully we don’t see Irma do more damage forcing donations and disaster attention spread over 2 huge areas

  30. Brad -

    As much as I hate paying for insurance, it is a necessary expense for many items/situations. Living here in the southeast (Charleston) flood and hurricane coverage is especially important… as-is good disaster planning to keep everyone safe.

  31. Mr. Freaky Frugal

    I’m feeling smug about renting right now. :)

    We sold our home and moved into an apartment in downtown Philly after we FIREd.

    Sam – interesting point about relationship with insurance companies. Do you shop for better rates every couple of years or stick with the same insurance company for longer periods?

    1. I aggressively shop before I get insurance, and then just stick with it. However, with life insurance, my term is coming up in 5 years, so I’ve used PolicyGenius to channel check whether my new premiums are in the ball park.

      What year did you guys FIRE? How does the feeling of not owning property compare to the feeling of missing out on upside returns?

      1. Mr. Freaky Frugal

        Thanks for replying! We FIREd in 2012 but we didn’t sell our house until about 1.5 years ago.

        I took the money from the sale and invested a significant portion of it into a Vanguard REIT so I feel I do have exposure to the upside (and downside) of real estate. The rest I invested in stocks and bonds.

        I like the feeling of not owning a property because I feel like we have maximum mobility – we can relocate very quickly with a minimum of fuss.

    2. We are just now considering selling and renting and may have a buyer before we even put it up for sale. We’ve done the rental, and the home ownership but one thing from early on I always said is I never want to be house broke which we aren’t but things are now starting to need fixing. I’d love to hear all about your experience in selling and renting. I told DH I’d love to live in one state for a year, two max, then move to another to experience living in different parts of the country. It may be me because I’ve been stuck here in PA for all my life and ever time we considered moving, something always pulled us back (job offer so good it couldn’t be refused, getting confortable etc. A couple years back we were looking in another state and then mom got sick. She’s still with us so it might be just the time to sell and be ready to speed away when the time comes, speed asap with nothing (like home ownership) holding us back. I hope you will post more info about your experience.

      1. Mr. Freaky Frugal

        Beth – I assume you’re referring to me in your comment. If so, it’s a small world because I also live in PA!

        We sold our house in the Philly burbs and downsized to an apartment in downtown Philly. If you want to find out more about that, I have a post called “Adventures in negotiating rent” on my website. If you would like to discuss anything specific, please feel free to contact me directly.

        1. I checked it out. I particularly liked the crazy rule of 25 which talks about people renting storage space and how much extra retirement funds you’d need to support saving stuff.

  32. We are fortunate to live outside of a majority of the “natural disaster” zones (northern Michigan), so while we keep a stocked pantry for the potentially crazy snowstorm that would render us homebound and without power for a few days, we are not in a danger zone for hurricanes, earthquakes, fires or (except for the very rare occasion) tornados. I have yet to experience an intense natural disaster, but I was in close proximity to a few forest fires and I felt one small earthquake when I was living in southern CA. It certainly made me think about how I would insure myself if I settled in CA with the inherent risks associated with living in some areas.

    1. It’s interesting, as I updated the post with the map of the US most susceptible to natural disasters, and only Michigan is safe from everything! Well… everything except the freezing cold!

      How long have you guys lived in Northern Michigan, and do you like it?

  33. I live in the North Georgia mountains, and we’ve had a surge of folks relocating from coastal Florida to the mountains over the past few years.

    Primary reason: the massive increases in flood insurance premiums post-Katrina. After this seasons storms, I suspect we’ll see another surge in premiums.

  34. Sam –

    As usual, a thorough article – thanks. Re: your questions, at the moment, we don’t (a) own our primary and only residence (we’re renting) and (b) own any vehicles (we walk and use public transit). We do have renter’s insurance which adequately covers our belongings and other basic categories. We live in the mid-west, so we’re not prone to earthquakes or hurricanes, but tornadoes are a different story. Fortunately, we’ve never gone through a major disaster resulting in any personal damage or injury; however, we did live in New York City during Sandy and saw the results that event caused to friends and other neighbors.

    – BD Mike

    1. There is something to be said about not owning a home or a car during times like these. Do you ever plan to buy a home? How does the lightness of not owning compare to the desire to own to ride the inflation wave and build net worth?

      1. We do plan to buy a home if and when the time seems right for us. And, yes, there is a sense of lightness not having to directly own. While I certainly agree owning your primary residence is a primary way to beat inflation and build net worth, we’re still actively increasing our net worth and working to acquire income-producing assets.

        A bit ironic perhaps, about 25 percent of our assets are in REITs, and we recently started investing via Fundrise to diversify across our real estate exposure. Yet we still continue to rent (more a decision resulting from our relocating from New York to the Midwest for job and personal reasons).

  35. We live near a fault line, and the fear of an earthquake definitely hits me on occasion. I am actually not sure at all what our insurance covers in relation to that though. This is a really good reminder for me to call and check that out.

    I do like the process you outline, of figuring out whether you should pay or if you have enough to take care of things. Again, not how my mind works in that area so that’s a big help.

    PS: congrats on not having any issues with hag while owning that San Francisco home. That seems like a huge feat to me!!

    1. Gracias. There’s been a lot of prejudice over owning in SF all these years from folks who don’t live in SF. I kept on getting the “What if the big one hits?” and “Oh no, aren’t you scared of earthquakes?” etc. It gets blown out of proportion.

      The big one is probably due, as it’s been almost 30 years. Hopefully our construction is stronger now than back then.

      I just want folks reading this article to call their insurance providers and get smart about coverage. This way, whatever happens, you’ll know you made the best financial decision possible and can’t cry ignorance.

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