What Is Parametric Insurance? Can it Help Support My Homeowners Insurance Policy?

Parametric insurance covers you whether or not a particular event takes place. For example a natural disaster. Homeowners in California may be interested in parametric insurance if they live in a high risk area for natural disasters like wild fires. 

How parametric insurance works

Most common types of insurance will reimburse you for repairs if your home is damaged by a covered peril. Parametric insurance is different in that it will pay out if a particular event occurs. Usually without considering if damage happened. 

Let’s say you live in an area prone to earthquakes. You can decide to take out a parametric insurance policy that will pay you out $20,000 if an earthquake above 4.0 occurs in your zip code. If an earthquake of that magnitude does actually happen, you will receive a pay out for that amount. Regardless of whether or not the damages add up to $20,000 or $200,000.  

Most parametric insurance policies have a measurement of sorts attached to them. A common example would be an earthquakes strength. 

Homeowners insurance differences 

Your homeowners insurance policy covers you for a variety of risks. The coverage is more vast and it will protect you in more ways than parametric insurance. What parametric insurance can do that homeowners insurance can’t is cover unexpected travel delays.

Parametric insurance pays out at a faster rate than homeowners insurance. Your typical homeowners insurance policy will have to go through several steps before finally receiving a payout. With parametric insurance the insurance adjuster will only have to verify that the actual event did happen. If it was an earthquake, that data will be readily available to support your claim. 

Another major difference is parametric insurance doesn’t typically come with a deductible or exclusions. There also isn’t an adjuster estimating the amount of the damages. 

Why should I consider a parametric insurance policy?

If you live in an area that is at high risk of natural disasters, you may want to consider a parametric insurance policy. There are situations where homeowners may not be able to receive adequate coverage on their home, and parametric insurance can help support your current home insurance policy. 

If you need a fast payout for whatever reason, you may want to consider a parametric insurance policy. As mentioned above, due to not needing the same investigation as a regular homeowners insurance policy, the payouts are much faster. 

You may not be able to receive coverage. Some high risk areas come with rules and regulations that may not allow you to be cover by certain perils. For example if you live in California you may have trouble getting coverage for wild fires. Parametric insurance may be a good alternative. 

You may want help to meet your deductible. There are parametric insurance policies that will run in congruence with your normal homeowners insurance policy. This is to help you meet your deductible. This is typical for homeowners who live in high risk areas that are prone to natural disasters like hurricanes, flooding or earthquakes. 

As an example let’s say you live in an area where hurricanes are common. Your standard homeowners insurance policy may have a deductible of $3,000, but a hurricane deductible of $30,000. Your parametric insurance policy would help you to meet your deductible so you will not need to pay for any additional expenses out of pocket. 

How can you get a parametric insurance policy?

There isn’t a huge market for parametric insurance. Especially compared to the regular homeowners insurance market. So it’s not usually as easy to get a parametric policy as it would be to get a normal home insurance policy.

The best way to find out more information is to call one of our agents. They can help you to determine whether or not a parametric insurance policy is for you or if upgrading your standard homeowners insurance policy may be better. 

Give us a call today we would love to hear from you! 916 313 6100