Terrorism Insurance: What Is It And Do You Really Need It?

A steel girder from one of the fallen World Trade Center Towers, across the Hudson river from Manhattan. An American Flag is draped over the girder with the Freedom Tower in the background. Getty Images/Alex Baxter

Terrorism Insurance is something we hear more and more about these days. Chances are, before the terrorist attacks of 9/11, you had never heard of terrorism insurance. This is because before the attacks on the Twin Towers at the World Trade Center in New York City, terrorism insurance coverage was included in most homeowners and business owner’s insurance policies. After 9/11, insurance companies excluded terrorism coverage from these policies and made it a policy that you must purchase separately.

Terrorism Risk Insurance Act

The Terrorism Risk Insurance Act (TRIA) of 2002 was signed into law by President George W. Bush on November 26, 2002, to help ensure insurance companies have the ability to provide coverage for terrorism risks. Under the provision, there is shared private and public compensation for insured losses of acts of terrorism.

The government essentially became the reinsurance company backer for standard insurance companies in case of a large-scale terrorist event with catastrophic losses. The act has been extended in 2005 and again in 2007. A single terrorist act must result in $5 in insured losses before qualifying as an act of terrorism under the TRIA provision. The current extension of this law is set to expire on December 31, 2014. Congress is taking into consideration whether or not to extend the Terrorism Risk Insurance Act once again.

Terrorism Damage Statistics

The damage from the terrorist attack of 9/11 has been estimated at $40 billion in both property damage and loss of life.

Almost 3,000 people lost their lives during this attack in New York City, Pennsylvania, and Washington, D.C. These catastrophic losses forced reinsurers (this is the insurance company’s insurance company so to speak) out of the market. With no backup by reinsurance companies and an inability to accurately price these terrorism risks, insurance companies were forced to exclude terrorism coverage.

Who Needs Terrorism Insurance?

Certain contractors for hire may be required by their clients to carry terrorism insurance as a condition of the contract for completing a job or a lender may also require terrorism coverage for investments. Also, businesses that are located where known acts of terrorism have occurred may also be required to carry terrorism insurance. When in doubt, check with your insurance agent and ask if you are legally required to carry terrorism insurance. Better yet, check with your own state’s department of insurance. If you do not know how to contact your state’s department of insurance you can go to this National Association of Insurance Commissioner’s (NAIC) link for U. S. States Departments of Insurance.

Most insurance companies offer a terrorism insurance policy even though it is usually not mandatory with the exception of workers compensation insurance. This is because workers compensation insurance is regulated by state statues that specify employers must provide compensation for on-the-job injuries regardless of fault. Workers compensation policies are not subject to the same types of exclusions as other types of insurance because of these state regulations.

Even if you are not required to carry terrorism insurance, it may be a good idea for you to carry this coverage if you live in a large metropolitan area, an area known for prior terrorist attacks are even if you just want to make sure you, your family, belongings and business assets are insured against any losses resulting from a terrorist attack.

How to Buy Terrorism Insurance

You can buy a stand-alone terrorism insurance policy from many of the standard lines insurance carriers. Most insurance companies are able to sell you coverage for terrorism insurance if you feel you need it or are required to purchase it for yourself, your work or your business operations.

Where to Buy Terrorism Insurance

There are insurance companies who offer terrorism insurance either as a stand-alone policy or part of a package coverage plan.

Here are a couple of companies you can check with to find out what options each one has for terrorism insurance coverage; Chubb and XL Group P. L. C. Check out insurance rating organizations to make sure your insurance company is reputable and has a good financial strength rating. You can also check out an insurance company’s customer services record with the Better Business Bureau or through J.D. Power & Associates.