Shuman Roy is an entrepreneur, business owner, and musician. He started RoysNoys, LLC in 2013 as a music production and education service company. He also offers small business consulting and advisory services to help businesses get from start-up mode to turn-key operations. Shuman earned his M.B.A from the Stern School of Business in 2001 and has an undergraduate degree from Manhattan College in ...

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Joel Ohman is the CEO of a private equity-backed digital media company. He is a CERTIFIED FINANCIAL PLANNER™, author, angel investor, and serial entrepreneur who loves creating new things, whether books or businesses. He has also previously served as the founder and resident CFP® of a national insurance agency, Real Time Health Quotes. He has an MBA from the University of South Florida. Joel...

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Reviewed by Joel Ohman
Founder, CFP®

UPDATED: Jul 19, 2021

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After working in the insurance industry for several years, I’ve come to the realization that many homeowners are not aware of their responsibility to purchase things like flood insurance or earthquake insurance in the case of a natural disaster.

The average person may believe that a homeowner’s insurance policy covers their property against these causes of loss, but it’s simply not the case.

Without specifically purchasing flood or earthquake insurance, the cost to replace or repair your home and its contents are not covered.

You would simply be out of luck, and the unexpected expenses tied to these events could force you to file bankruptcy.

When your home and its contents are not covered for a specific peril, you’re also not insured against any additional expenses that result from the loss.

For example, if a flood destroyed your home, you would not be reimbursed the extra living expenses incurred by having to find another place to live, nor the additional expense of the temporary living quarters you choose.

What’s worse, you may not be able to work if all of your possessions are lost, which may force you to use up paid time off, or simply lose out on income altogether.

Not having life or health insurance may also put you in a position where medical bills exceed your income to a degree bankruptcy may be the only means available to eliminate the debt.

Car insurance may also lessen the chances a personal bankruptcy is in your future. An individual runs the risk of being personally sued any time they operate a motor vehicle, especially driving without state mandatory minimum car insurance coverage.

While all the circumstances above may lead an individual to file bankruptcy, it’s worth pointing out that insurance is not the end-all protection against bankruptcy.

Even those of us with adequate life, health and auto insurance in place may face the risk of bankruptcy.

Medical bills can still rise above what insurance will cover and, in most states, you can be sued for money in excess of your liability limits if you are at fault in a particularly bad accident, causing severe bodily injury, property damage or even death.

Technically, it is the duty of your insurance agent to make you aware of the need to purchase this additional coverage, though many agents fail to do so.

Contact an independent insurance agent to ensure you are properly covered.