Catastrophe Insurance
What Does Catastrophe Insurance Mean?
Catastrophe insurance provides coverage for catastrophic events, including natural disasters such as earthquakes, floods, and hurricanes, as well as man-made disasters like terrorist attacks.
This type of insurance can be offered as a commercial product for businesses or as personal insurance for homeowners.
Insuranceopedia Explains Catastrophe Insurance
The events covered by catastrophe insurance are high-cost occurrences with a low probability of happening. Despite their rarity, these risks are often excluded from standard homeowners or business insurance policies. For instance, many homeowners’ policies do not cover certain natural disasters, including earthquakes, sinkholes, landslides, and floods. You can read more about whether homeowners insurance covers natural disasters and where the gaps typically are.
When a homeowners’ or business policy offers only partial coverage for these events, catastrophe insurance can be purchased to supplement the protection provided by the primary policies. Flood damage is one of the most common exclusions, so homeowners in flood-prone areas often need separate flood insurance in addition to or instead of a broader catastrophe policy. Earthquake coverage is another common gap, since most standard policies exclude it entirely.
Given the scale of the damages covered by catastrophe insurance, assessing and estimating the potential cost of an insured loss can be challenging. This difficulty arises particularly because catastrophic events can lead to a significant volume of claims for substantial losses.
