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What Volcanic Eruptions Mean for Homeowners Insurance

by Precise Leads

May 22, 2018

Property owners whose homes are at risk of damage from volcanic activity need to know what their policies cover.

The current eruption of Hawaii’s Kilauea volcano has so far destroyed more than 35 residential and non-residential properties, according to state Insurance Commissioner Gordon Ito. Since the volcano erupted on May 3, some 2,000 residents have been forced to flee their homes.

Ito said his department had yet to tally insured losses from the lava flow that threatens to damage even more properties. Roughly 1,000 homes with an average value of $230,000 are at immediate risk, estimates catastrophic modeling firm CoreLogic. What’s more, Hawaii’s Civil Defense Agency said about 18 fissures have opened since Kilauea first erupted, causing fear that a massive explosion could hurl large debris into the air.

Insurance agents who work in the area should be prepared to speak with clients now to review what is covered under their policies. For insurance agents not in Hawaii, the ongoing volcanic eruption offers lessons on the importance of securing coverage for clients that protects them from even the rarest natural disasters.

Most Homes Covered

If lava triggers a fire that then destroys a home, the homeowner’s policy would likely cover that event, Ito confirmed. The Insurance Information Institute (III) agreed property loss resulting from a volcanic eruption, ash, dust, or lava flow is covered under most homeowner, renters, or business insurance policies.

Volcanic activity can wreak havoc on more than just homes, however. It can do significant damage to cars, as well. If a driver owns a comprehensive auto insurance policy, then he or she would be reimbursed for any damage caused by lava. Comprehensive policies are not standard, however, because drivers have to sign up for that option. However, most auto policies would cover repairs if the engine stopped working due to a sudden and overwhelming blow of volcanic ash or dust.

To be clear, not all destruction resulting from a volcanic explosion would be covered under a standard homeowner’s policy. For example, a typical homeowner’s policy excludes damage from an earthquake or landslide produced by a volcanic eruption. Likewise, property owners are responsible for paying for any cleanup of ash and debris on their property. The cleanup would be covered if the ash or dust was so heavy the property collapsed, though.

All-Risk Policy Needed?

Since natural disasters like volcanic eruptions and earthquakes are infrequent, most homeowners don’t purchase all-risk policies that include those hazards, Jerry Bump, Chief Deputy Insurance Commission at Hawaii’s Department of Commerce and Consumer Affairs, told CNN. Furthermore, people who live in zones at high risk of volcanic activity would find it difficult or too costly to get coverage, he added. Nevertheless, Bump advised homeowners to check with their insurance agents about what is covered under their policy.

In addition to insurance payouts, Hawaiians impacted by the volcano’s lava flow could be eligible for federal assistance after President Trump declared a state of emergency. Therefore, insurance agents can remind their clients that low-interest loans from the Federal Emergency Management Agency are available to help rebuild their homes.

The Kilauea volcano’s outburst has spurred concerns regarding similar volcanic explosions along the West Coast in Washington, Oregon, and California. Agents with clients in those states may want to discuss with their homeowner policyholders whether they’re at elevated risk and require additional coverage under their policy.

Agents outside of Hawaii and the West Coast can use the Hawaiian natural disaster as a conversation starter to speak with clients about coverage that protects them against a wide range of risks — even ones considered rare. After all, it’s always best to be prepared for the worst.

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