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What Is Parametric Insurance?

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The ongoing concerns of environmental and climate changes have always affected the worries of more than just government entities. In certain areas, homeowners become increasingly worried about natural disasters like floods, tornadoes, earthquakes, and hurricanes. These natural disasters can quickly wipe entire areas causing families to face financial hardship and be displaced for months. It is easy for a person to say “well, you should’ve thought about that before you moved there.” Weather patterns have changed greatly over the years in areas that used to never even consider a natural disaster to be possible. Parametric insurance is a tool that homeowners can use to practice proper risk management for their assets.

What Is Parametric Insurance?  

Parametric insurance is a type of insurance that protects assets when particular events happen. It is a very simple form of insurance that pays out when an event like a natural disaster occurs. This type of insurance proves to be very useful for homeowners in high-risk areas such as Texas and Florida. 

Parametric insurance works quite differently than other kinds of insurance. Usually, insurance pays out an amount that covers the cost of damages or the value of the item insured. Parametric insurance works differently. Parametric insurance pays out the value of the policy based upon whether an event occurs, not if any damage happens. For instance, a home could be in a hurricane’s path, but not receive any damage. You can still receive payment due to the home still being hit. 

Parametric insurance policies still have to have some kind of measurement attached to them. Usually, it is based on the severity of the event. For example, parametric insurance for earthquakes may only kick in if it is over a certain number on the Richter scale. The most common form of parametric insurance is life insurance. Life insurance payout operates in the same fashion as disaster parametric insurance policies. Life insurance pays out based on when the person passes regardless of their financial standing.   

When Should You Consider Parametric Insurance?

Sometimes, homeowners have a hard time breaking down the differences between parametric insurance and home insurance. Both forms of insurance help quell the stress of your home facing uncontrollable events. There are key differences, however. Parametric insurance has a way faster payout period, no deductible, and can cover almost any kind of event. On the other hand, homeowner’s insurance covers a wide range of events and has a much more affordable premium, but has longer payout periods and only covers when damage is incurred. Homeowner insurance policies might not be offered in certain areas either. For example, coastal areas might find a hard time getting coverage for flooding and wind damage. 

If you are having a hard time getting a homeowner insurance policy, a parametric insurance policy is a way to go. An expensive form of insurance will still always triumph over no insurance at all if you are in a high-risk area. The high customizability and high chance of payouts will be worth the premium in the long run. To find out more, contact your insurance agent and they can design a policy for you.

I hope this helps!

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