The Checkout

Disaster Marketing

I received an interesting solicitation this week from my mortgage company, making it clear that there are a lot of companies still trying to take advantage of Hurricanes Katrina and Rita.

The solicitation was for Disaster Mortgage Protection in case my home was ever devastated by fire, flood, earthquake, hurricane, tornado, etc. etc. For $25.96 a month, this insurance would pay my monthly mortgage payment for up to 2 years if a disaster forced me from my house for more than 48 hours. It also would help pay the balance of my mortgage if my home is completely uninhabitable (up to $250,000 max).

Why would I need this? The letter says my homeowners insurance policy may not pay my monthly mortgage if my house is damaged or destroyed by a disaster; while the insurance company would pay for repairs and probably living expenses, it would still be my responsibility to pay for my mortgage.

That's true, but insurance-industry experts say the odds of a complete disaster making a house uninhabitable, forcing residents out for a considerable time are very, very slim. It's a limited benefit to homeowners--and probably a pretty good one to the insurance company, said one official who declined to be named. "It won't have to pay out very darn often....At $2 a month, this may be a good deal, but not at $26."

Robert Hunter, who as director of insurance for the Consumer Federation of America is very critical of the industry, said this is the first he's heard of Disaster Mortgage Protection, but he's not surprised. "These kinds of things crop up when people are afraid. ... The product is sold on fear. But our two rules about insurance are don't buy on fear or love and don't buy insurance from someone who is trying to sell you something else, like car insurance from a car rental company or pet insurance from a vet." Remember, Hunter said, these companies, as well as my mortgage company, are probably getting some sort of kickback from the insurance company for every policy that's sold. So if you really think you need this kind or insurance--or any other--shop around to get the best policy.

If you have received any kind of similar solicitations playing on Katrina fears, please let me know at thecheckout@washpost.com

By  |  March 20, 2006; 11:29 AM ET Consumer Tips
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