When you should buy disaster insurance

Hurricane Irene uproots a sidewalk and blocks a neighborhood street in Manasquan, New Jersey.

Jeremy Hobson: Many of the victims of Hurricane Irene are now turning to the cost of their personal property damage. Problem is, a lot of East Coast insurance policies don't cover floods. So how do you decide what to be insured against?

For answers, let's bring in LA Times consumer columnist David Lazarus. Good morning.

David Lazarus: Good morning, Jeremy.

Hobson: Well David, you and I both live in L.A., we wouldn't expect anything like a hurricane to come here, but who knows? Maybe it would. Should we be insured? Should we be prepared for something like that?

Lazarus: I guess it all depends on what it'll take to help you sleep at night, because that's really what insurance is all about. Obviously, planning for every possible contingency is nuts unless you are Bill Gates and you can throw money at every problem you like. Otherwise, you want to play the odds. So if you live in L.A. like we do, earthquake insurance is something that should be high on your list if you're a homeowner. If you live on the East Coast, then you think about hurricane insurance.

Hobson: So all those people that just experienced the earthquake last week on the East Coast, they were probably right not to have insurance for that?

Lazarus: Oh absolutely, if you are playing the odds. What, that was the first earthquake they've felt in 70 years, something like that? So who is going to buy earthquake insurance for something like that? Whereas out here, you'd be nuts if you have a home to at least not take a close look at that product.

Hobson: So you're better off not having insurance and then just paying out-of-pocket if you suffer any damage from any disaster that happens?

Lazarus: I guess in those extreme cases that we're describing. The rule of thumb here, Jeremy, is the amount of equity that's in your home. And so that's when you want to start really planning for a disaster. So if you live in California and you have a lot of equity in your home, you need to protect that. Earthquake insurance suddenly becomes a good idea. If you live on the East Coast and, again, you have a lot of equity in your home, then you want to think about things like flood insurance or hurricane insurance or locust insurance or whatever it is that's the problem out there. That's what you're trying to protect, though, is your investment.

Hobson: And what about renters? We're hearing a lot more people are renters these days as the housing market has suffered. Should they be prepared when it comes to insurance?

Lazarus: I know a lot of people who are renters who swear by renter's insurance. All I can tell you is while I was a renter, I never had it and I did just fine. Now that's not a very expensive product -- roughly $15 a month for $30,000 in coverage or so. And it'll protect you for anything that your landlord's policy might not cover, so we're talking about natural disasters, possibly theft, things like that. Again, it all comes down to piece of mind. If this is going to help you sleep at night, then that's $15 well spent. Otherwise, that's $15 you can buy melatonin, you can buy stiff shot of whiskey, whatever will work, you know?

Hobson: L.A. Times consumer columnist David Lazarus. David, thanks so much.

Lazarus: Thank you.

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