Is Flood Insurance Right for You?
Aug 31, 2018 11:41AM
By Jennifer Monahan
Splashing around in the ocean on a hot summer day, jumping in puddles and sipping an icy cold glass of H20 are some of the best ways to enjoy water. Anyone who lives near a river, stream or large body of water, however, understands that water can also be destructive.
Flooding is the most common natural disaster in the United States, according to the Federal Emergency Management Agency (FEMA) website. Despite its prevalence, the vast majority of homeowners’ and renters’ insurance policies do not cover flood damage, said Bill Ridge of Ridge Insurance Agency.
“Nationally, flooding is a peril, and the actuarial numbers cannot determine rates for natural disasters like floods,” Ridge said. For that reason, Ridge explained, the federal government—rather than private insurance companies—guarantees flood insurance. Though consumers still must purchase flood insurance through an agent, the insurance itself is provided by the government’s National Flood Insurance Program.
What is Flood Insurance?
Flood insurance is different from homeowner’s insurance in a few key ways, explained Shawn Craig of Shawn F. Craig Insurance Agency. First, homeowner’s coverage is typically more comprehensive; it covers the home and its contents as well as outbuildings such as sheds, detached garages, wells and gazebos. Flood insurance, conversely, only covers the home itself (no outbuildings). Coverage for flood damage must be purchased separately to cover a building structure and then, distinctly, the contents within that building.
Second, while homeowner’s insurance covers many “acts of God” such as fire, lightning, smoke, windstorms, hailstorms, and even tornados, flood damage is typically excluded from that list. Finally, the definition of a flood is narrow; it does not necessarily include every instance of water in the homeowner’s basement. Ridge explained that with most flood insurance policies, dampness in the basement and a few inches of water would actually not be covered.
How Do You Know If You Need Flood Insurance?
Some mortgage lenders require homeowners to purchase flood insurance. For everyone else, the decision includes a variety of factors: the risk of flooding, the homeowner’s ability to cover the costs of repairing or replacing items lost to water damage, and the cost and availability of flood insurance.
Even those who do not live near water should consider flood insurance, Craig said. He explained that more than 20 percent of flood claims come from properties outside of high-risk flood zones. Craig has recently had three customers who suffered storm-related flood damage, all of whom lived outside flood zones. And the damage can be costly.
“Just one inch of water can cause more than $20,000 worth of damage to the average home,” Craig explained.
Most areas of the country have access to flood insurance, Ridge said, although living in a flood zone can make the cost prohibitively high. He added that flood insurance rates tend to be relatively reasonable in western Pennsylvania because widespread flooding is unusual in this area. People who live near rivers and streams will still pay quite a bit for coverage, however.
What are the Pros and Cons?
While flood insurance can be a boon after a flood event, it may not cover certain water damage. Both Ridge and Craig suggested that homeowners work closely with their agents to understand the different policy options and learn exactly what is—and is not—covered by flood insurance.
Ridge explained that a homeowner could have five feet of water in the basement, but that flood insurance would not cover flood damages until and unless the water reaches the home’s first floor. The potentially thousands of dollars of loss in the basement would not be covered despite having flood insurance.
Another caveat is that the size of the flood matters when determining coverage after an incident. If a river overflows its banks and only one house in the neighborhood is affected, flood insurance is unlikely to cover the damages. If all the houses in the area are flooded, that same home would be covered by flood insurance. Ridge said that the federal guidelines dictate an area of approximately two acres must be affected before flood insurance kicks in.
The typical minimum deductible for flood insurance is around $2,000, added Craig. Rates are determined by the federal government and can be as low as $400 per year; they go up significantly for anyone living in a flood zone. Customers should also be aware that a 30-day waiting period is standard for new flood insurance policies, so purchasing a policy the day the meteorologist predicts a 100-year storm is not feasible.
Ultimately, the need for flood insurance is best assessed on a case-by-case basis with an insurance agent. Ridge explained that flood insurance is not necessarily right for everyone, but he makes sure that his clients know that it is available.
Craig added that flood insurance can be the difference between recovering from flood losses or facing financial devastation. “Why risk it?” he asked.
To find out more about flood insurance options, check out www.floodsmart.gov or contact an independent insurance broker who can explain options and provide quotes.