Insurance Policy
General Home Insurance
According to the Insurance Information Institute, homeowners insurance
provides financial protection against disasters. Homeowners insurance
generally covers many areas including the house, its contents, and personal
liability claims against policyholder and other members of the household. The
coverage that each person wants to get depends on their needs and priorities
and the insurance premiums depends on the coverage each individual chooses.
An insurance premium is the amount paid or to be paid by the policyholder
for coverage under the contract, usually in periodic installments.
(Dictionary, 2006) Each household's insurance premiums is also weighted on the
square footage of the house, building costs, construction materials and
features, crime rate in the neighborhoods, probabilities of disasters and
distance of the closest fire hydrant or fire station, and the conditions of
plumbing, heating, and electrical system (Insurance Information Institute).
Generally, the homeowners insurance covers from disasters such as “windstorm,
hail, fire, lightening, theft, aircraft, vehicles, smoke, vandalism, malicious
mischief, explosion, breakage of glass, explosion and riot or civil
commotion.” (California Department of Insurance, 2004). Most home insurance
generally does not cover flood, earthquakes, or maintenance related damages.
There are three basic types of home insurance policies:
1.HO-2 or the Basic Home Insurance Policy which covers the value of the home,
personal liability protection and theft. The Basic Home Insurance Policy is
usually required by the mortgage companies to purchase.
2.HO-3 or the Comprehensive Home Insurance Policy is the policy that most people have and it covers most of what a general home insurance should cover such as fire, lightening, theft, wind, water (not flooding) and etc.
3.HO-8 or the Special Home Insurance Policy is highly recommended and usually
used by the homes prone to certain natural disasters (although even this plan does not cover flood insurance or earthquake insurance). (The Different Types of Home Insurance, September 21, 2006)
These are the most common types of homeowners insurance, but each of these
different coverages also have about three subdivision on which homeowners can
choose their limits.
1.Actual Cash Value is the type of limit in which the homeowners will get
reimbursed with the fair market value (amount house would sell for with no outside pressure).
2.Replacement Cost Value Policy is the type of limit in which homeowners can rebuild their homes without any deduction (the insurance money might still not cover for all the money it might take to rebuild but they will reimbursed for most part of it) but they will not be funded for improvements on their homes to keep up with the building codes.
3.Guaranteed or Extended Replacement Cost is the type of limit in which homeowners will be reimbursed fully to rebuild their home even if it exceeds policy limits, although they still will not be funded for improving their homes to new building codes. (Spend on Life, November 13, 2006)
According to Insurance Focused, the first option of the actual cash value option
generally cost twenty five percent less than the replacement cost value policy and the replacement cost value on AVERAGE cost about $400 to $1000. Although there is extensive home insurance provided by various private insurance companies like State Farm, they still do not provide for flood insurance and according to FEMA, floods are the number one natural hazards in the United States.
National Flood Insurance Plan (NFIP)
Thus, to cover the damages caused by floods, the United States Federal
government created the National Flood Insurance Policy under the National Flood
Insurance Act of 1968. National Flood Insurance Plan defines flooding ?as the
general and temporary condition of partial or complete inundation of normally
dry land areas for the overflow of inland or tidal waters or from the unusual
and rapid accumulation or runoff of surface waters from any source. The
premiums for flood insurance are assessed by criteria similar to that of
general home insurance. On average, NFIP's premiums costs about $370.00 per
year. However, there are many factors, when followed, can help reduce this rate
(National Flood Insurance Guide, 2006). Updating homes to newest building codes
and giving each home the best possible protection against flooding can cause
the cost of the NFIP to decrease. Furthermore, if the home owner's community
participates in the Community Rating System, and the community follows the
measures to decrease the possibility of damages caused by flood, then the flood
insurance for homeowners in that community will decrease by 5% to 45%. Home
owners can obtain NFIP either directly through FEMA or with the Write Your Own
programs through private insurance companies. In the WYO program, homeowners
basically by their flood insurance from their insurance agency whose flood
insurance is backed by the NFIP. Although the NFIP is not mandatory in all
areas, it is still strongly recommended and urged by FEMA for everyone, even
those not living in high risk areas to buy this policy. When the homes are
backed by the federal loans, then the government determines if the home is in
the Special Flood Hazard Area. If the home is determined by the government to
be in such a area, then NFIP is made mandatory and must be purchased within
forty five days of notification. Also, when the government provides assistance
to rebuild homes after a nationally declared flood disaster, it can make
purchase of NFIP mandatory after the assessment of the area. Thus far, 19000
communities participate in the NFIP program and NFIP provides up to the
$250,000 of building coverage and $100,000 of content coverage (National Flood
Insurance Guide, 2006).
Federal Emergency Management Agency (FEMA)
Governor Kathleen Blanco declared a State of Emergency on August 26, 2005 and
requested disaster relief funds from federal government on the 28th. President Bush then declared Sate of Emergency on the 28th and thereby giving federal assistance. On August 29th, President Bush declared Hurricane Katrina as a major disaster and by September 8th, $52 billion in aid was assigned in aid to the victims of Hurricane Katrina by the Congress (Kunreuther, 2006). Overall, the victims of Hurricane Katrina were left helplessly while the federal and state government played the blame game. FEMA waited two days after the storm hit to activate a national response plan. Michael Chertoff, secretary of
Homeland Security claims that he did not know that the levees will be over topped or breached until the morning of the damage. However, Chertoff claims that he kept asking Brown, who was not trained to take on the role of director of FEMA, if FEMA was all set and Brown claimed they had what they needed to respond to hurricanes (CNN, 2006). However, once the hurricane blew over, and victims of Katrina still were not helped, Brown was removed as head on September 9th, and he resigned on 12th. However, Brown also claims that it was not FEMA's job to evacuate the residents, it was the governor's and state's job to do so and FEMA's help cannot be provided until the state declares its need
for help. (Stone, 2005)
