Catastrophe Insurance

Published: | Updated: May 13, 2018

Definition - What does Catastrophe Insurance mean?

Catastrophe insurance provides coverage in the event of catastrophic events. These include natural disasters such as earthquakes, floods, and hurricanes, as well as man-made disasters, such as terrorist attacks.

Catastrophe insurance can either be a commercial product sold to businesses or personal insurance sold to homeowners.

Insuranceopedia explains Catastrophe Insurance

The events covered by catastrophe insurance are high-cost events that have a low probability of occurring. Despite their rarity, these perils are often excluded from standard homeowners or business insurance policies. The majority of homeowners policies, for instance, exclude several types of natural disasters, including earthquakes, sinkholes, landslides, and floods.

When a homeowners or business policy provides only partial coverage for these events, catastrophe insurance can be purchased to supplement the protection afforded by the primary policies.

Given the scale of the damages covered by catastrophe insurance, it is difficult to assess and estimate the potential cost of an insured loss. This is due especially to the fact that catastrophic events can lead to a very high volume of claims for substantial losses.

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