In the wake of Hurricane Harvey, nearly 35,000 displaced residents of the greater Houston area will return to survey the debris-filled ruins of what was once the foundation of their lives. Of those, only 17 percent living in the eight counties directly affected by Harvey have actual flood insurance.
And it doesn’t take catastrophic disaster to constitute enough substantial damage to need assistance rebuilding homes and lives. In fact, just an inch of water can cause more than US$20,000 worth of damage. Losing a home without insurance compensation is financially devastating. A total loss could delay retirement or force people into bankruptcy.
Often, this is due in part to a few mistaken beliefs homeowners have when it comes to flood insurance coverage. Here are answers to five of the key misconceptions.
Flood Insurance: Different than Homeowners Insurance
If you could take one tidbit from this article, it should be this: standard homeowners insurance doesn’t cover flood damage. And there is a major difference when it comes to coverage and water damage type.
Homeowners have to purchase separate flood insurance policies from the government-run National Flood Insurance Program. In some cases, it could cover damage caused by rain. That is, you’re typically not covered if rising bodies of water flood your home.
You might not have a choice when it comes to purchasing flood insurance. If you’re taking out a mortgage on a property that’s in a high-risk zone (aka Special Hazard Flood Area), your lender may require an additional policy purpose to get the loan. If you just want to buy a policy, you have to make sure your community participates in the national flood program. Flooding affects every state, so you’re probably eligible.
And lastly, legally, homeowners in places that FEMA designates as “high-risk” flood areas are supposed to have the insurance. Across the country, only 12 percent of homeowners have flood insurance. The rate is a bit higher in Texas, Louisiana and Florida, but even in those coastal areas, only about 20 percent get it.
Flood Insurance: Everyone Lives in a High-Risk Zone
Make sure to always stay aware of what constitutes a high-risk zone. Your mortgage company may require you to buy flood insurance if your home is in a high-risk area.
Often, there’s a common misconception that you don’t need flood insurance if you’re in a moderate to low-risk area. This is not the case. Studies show 1 in 4 flood claims occur in non-flood plain areas. Don’t forget it can flood anywhere it rains. Floods are no. 1 for natural disasters in the United States, constituting 75 percent over the past five years.
The official definition used by the National Flood Insurance Program is: “A general and temporary condition of partial or complete inundation of two or more acres of normally dry land area or of two or more properties (at least one of which is your property)” caused from:
- Overflowing inland or tidal waters.
- Unusual, rapid accumulation or runoff of surface waters from any source.
- Mudflow (mud carried by a flow of water, creating a river of mud).
In simple terms, a flood is an excess of water on land that is normally dry.
Flood Insurance: All Property Value is Treated Equal
Physical damage to your building or personal property “directly” caused by a flood is covered by your flood insurance policy. You’re also covered when shore-front land collapses or sinks due to waters above “anticipated cyclical levels.”
Sometimes, that’s not quite as straightforward as it sounds.
Water and seepage coming from a sewer or drain backups, or an overflowing sump pump isn’t covered by flood insurance. For example, damages caused by a sewer backup are covered if the backup is a direct result of flooding. However, if the backup is caused by some other problem, the damages are not covered.
Flood insurance won’t reimburse you for:
- Temporary living expenses (if your home is being repaired.)
- Lost cash or stock certificates.
- A ruined car (which is a matter for your car insurance).
- Damage from moisture or mold that you could have prevented.
- Financial loss from business interruption.
- Anything on your property beyond the walls of your home — such as plants, decks and hot tubs.
A general rule of thumb when it comes to property coverage? If it fits in a bank safety box it’s more than likely not covered. So, currency, precious metals, and valuable papers such as stock certificates.
And, if you have a basement, you’ll have more risk. The NFIP limits coverage for any living space below ground level. Make sure to check with your insurance agent or for complete list of covered items.
Reminder: Do try to keep receipts for electronic equipment, wall-to-wall carpeting, major appliances, and other higher-cost items. Your adjuster will be able to process your claim more quickly. Plus, you’ll be able to prove how much items cost at the time of purchase. Also keep receipts for any repairs made with a flood insurance settlement.
Flood Insurance: Average Claim is $30,000
Flood coverage for your home caps at $250,000, while it covers contents up to $100,000.The policy pays either the value of your lost property or the cost of replacing it (up to the coverage limit.)
That is, when it comes to the physical structure of your house, federal flood insurance policies top out at $250,000. So, let’s say you have a $300,000 house that’s a total loss because of a flood. The most you can recoup through the program is $250,000 to cover the structure itself.
Typically, you’ll have the option to purchase one or both. Note that those top out at $350,000 in coverage for your home and its contents. For higher amounts, you may need supplemental coverage to protect your savings from taking a hit.
If you already have insurance through the federal program, then you can buy “excess flood insurance”. This is typically purchased through a private carrier that would cover claims above the national limits.
For deductibles, it is similar to home and car insurance. That is, the higher the deductible the lower the premium. You’ll pick different deductibles for contents and building coverage. Your lender may require a certain deductible amount.
And, just because the maximum limit is more than the average, doesn’t mean you should count on government aid just in case there is a natural disaster.
Flood Insurance: Don’t Count on Government Aid
Today, the average federal flood insurance premium is somewhere around $650 to $750 annually. This depends on your insurance company which can issue you a policy quote.
The most commonly offered flood insurance is through the National Flood Insurance Program (NFIP). FEMA allows private insurers to write and administer policies for the NFIP. Your homeowners or renters insurance agent should be able to write flood coverage for you.
Ultimately, the amount depends on certain factors. This includes the amount of coverage, deductible, the risk level of your flood zone and the age of the building.
For a buyer, if you’re looking at a home in a flood plain, make sure you properly budget for the more expensive policy. Many times the deal you can get will more than make up the cost of the policy. But go in with your eyes open and know what it will cost.
If you live in a flood plain, your mortgage company will likely require you to buy flood insurance. But you can purchase it even if you don’t live within a flood zone. Almost anybody can get flood insurance who wants flood insurance.
Remember that you don’t have to live in a flood plain in order to purchase a policy. Flood plains (and flood plain maps) change and evolve. Just because you weren’t in a flood plain when you bought your home a few years ago doesn’t mean you’re not in one now.
Flood Insurance: Final Thoughts
If you want flood insurance, it pays to think ahead. There is a 30-day waiting period between when you buy the coverage and when it kicks in.
Currently, many Americans face heavy rains and potential flooding. This makes now a good time to get your ducks in a row. Call your local agent and ensure protection for all of your finances. Most importantly, prepared for any possible damage.
For more information, visit the FEMA official National Flood Insurance Program site.