Hurricanes and insurance: 5 must-know facts

Updated Oct. 26, 2012, at 3:41 p.m. EDT.

This post comes from Mark Chalon Smith at partner site Insurance.com.

Neil Young may croon that there's "calm in your eye" when singing about a symbolic hurricane, but that's not how Hurricane Sandy is shaping up here in the real world.

As the East Coast braces for hurricane-force weather, there may be some solace in understanding how flood and windstorm coverage works. Here are five things you should know:

1. People usually underestimate the risk

Ninety percent of all natural disasters that occur nationwide involve flooding, according to the National Flood Insurance Program. To further underscore the danger, the NFIP notes that homes have a 26% chance of flooding during the life of a typical 30-year mortgage. That compares with the 9% risk that your home will suffer fire damage, the NFIP says.

Also, keep in mind that if you live in flood-prone areas, like those threatened by Sandy, your homeowners policy doesn't protect you if you have flood damage. You'll need separate insurance for that, provided by the NFIP and purchased through most insurance companies. To make sure your community is eligible for NFIP coverage, visi the NFIP's Community Status Book.

2. The 30-day clause

You can't just go out and buy flood insurance after learning that a hurricane or tropical storm is approaching. Coverage becomes effective 30 days after purchase, so the NFIP recommends that you consider where you live and the risks of living there, and plan ahead.

3. Wind damage and insurance

Insurance for windstorm damage caused by hurricanes usually comes with a deductible tied to your home's value, according to the Insurance Information Institute. That deductible typically ranges from 1% to 5%. So if your $200,000 house has a 2% wind damage deductible, you'd have to pay $4,000 toward repairs.

"In some coastal areas with high wind risk, hurricane deductibles may be higher" and even approach 10%, notes the III. 

4. Premiums for flood insurance

The average premium for flood insurance in 2010 was about $600 a year, according to the NFIP. But it can climb dramatically in a high-risk area -- $250,000 of protection in a coastal zone can cost you about $4,375, according t the NFIP's FloodSmart.gov website.

The NFIP also provides flood insurance in low- to moderate-risk areas for much less, as low as $129 a year in some cases.

5. Limits of federal flood protection insurance

Flood insurance provided by the NFIP tops out at $250,000, so you may have to buy more flood coverage with a private insurer.

These policies can add as much as several million dollars of extra coverage to your NFIP base, but can be purchased only after you first secure the NFIP protection, says Christina Loznicka, a spokeswoman for Allstate.

$16.2 billion in payouts after Katrina

One of the ways to measure the impact of such natural disasters is to consider the property damage and resulting insurance losses left in their wake. The III -- drawing on statistics gathered from the Federal Emergency Management Agency and the U.S. Department of Homeland Security -- released a list of the highest hurricane- and flood-related insurance payouts from Jan. 1, 1978, to July 31, 2011:

1. Hurricane Katrina, in 2005, resulted in 167,397 flood insurance claims with an average of $96,821 paid for each settlement. That's a total of $16.2 billion in payouts.
2. Hurricane Ike (2008) -- 46,316 claims, $57,033 per settlement, $2.64 billion total.
3. Hurricane Ivan (2004) -- 27,647 claims, $57,371 per settlement, $1.58 billion total.
4. Tropical Storm Allison (2001) -- 30,663 claims, $36,000 per settlement, $1.1 billion total.
5. Louisiana flood (1995) -- 31,343 claims, $18,667 per settlement, $585 million total.
6. Hurricane Isabel (2003) -- 19,864 claims, $24,825 per settlement, $493 million total.
7. Hurricane Rita (2005) -- 9,514 claims, $49,562 per settlement, $472 million total.
8. Hurricane Floyd (1999) -- 20,438 claims, $22,618 per settlement, $462 million total.
9. Hurricane Opal (1995) -- 10,343 claims, $39,208 per settlement, $406 million total.
10. Hurricane Hugo (1989) -- 12,840 claims, $29,317 per settlement, $376 million total.

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