For some reason, the client’s adaptation to saving money by getting a private flood insurance policy is still very low in the United States. Especially in the coastal communities with less than ten percent of homeowners buying coverage, each area accosts the nation with lower percentages than ten.
A real example is the recent flooding in Kentucky, which will be an economic loss of one billion. You would think this would cause those in Kentucky or neighboring states to buy up a flood policy ASAP. That is not the case. In fact, a recent study by one of the nation’s largest private flood insurance companies found that people buying policies in KY and neighboring areas is way below 6 percent.
Why is this?
As the Flood Nerd™, I want to explore this further.
And with the recent flooding and the real potential of more catastrophic flooding events, there is an urgency, and I need to advocate for an understanding of flood insurance.
Doesn’t my homeowner’s policy cover me?
This is a pipe dream and a major problem because people believe this statement. It shows how many never read the documents (especially insurance). I challenge you to dig out your homeowner’s policy, look for exclusions (it will be a few pages back), and see what is excluded from what the homeowner’s policy will cover. Below is a common list of exclusions.
- Earthquakes, landslides, and other ground movements
- Termites, rats, and other infestations
- Aggressive or dangerous dogs
- Poor maintenance or neglect
- Power surges or outages
- Home-based businesses
- Local building ordinance or law requiring you to bring your home up to code
- Intentional damage caused by you or another resident family member
- Nuclear hazards
- Government action
Notice that flooding is #1. That is not because the list is in alphabetical order. It’s because it is the number one event that is most likely to happen any given day of a calendar year on a 30-year mortgage. And that is why your homeowner’s policy will not cover flooding.
This leads us to the next statement we heard.
Flooding only happens to those living near lakes, rivers, or the ocean.
I want you to consider that every new development, housing, or commercial complex alters the natural drainage systems. Adding pavement and other compact surfaces changes how the water will flow and where it will go. We see more inland flooding with the increasing regularity and aggressiveness of storms.
Additionally, many of the nation’s dams and levees are in dire need of repair and at risk of failure. If you don’t believe this, think back to the instance of the Lake Orville dam in California. Due to the amount of rain runoff, the dam had more pressure on it than it was originally designed for, raising the lake’s level by 50 feet over a few days. In addition, the dam’s outlet created a large crater in the spillway. All this led to the governor ordering the evacuation of 180,000 residents and businesses until the dam was repaired. They could make the repairs by God’s grace, and the downpour subsided. But this instance could have been much worse, and I would be willing to bet that those 180,000 less than 14,000 might have had some kind of flood coverage. I am very optimistic, so sadly, there was probably less.
If I needed flood insurance, my lender would have required it when I bought my house. Or the government would have put this structure on a flood map, and it’s not, so I am not going to flood.
This statement is similar to the one above. You are safe from flooding if you don’t live near a river, lake, or ocean. The Federal Emergency Management Agency (FEMA) reports that 99% of the United States counties were impacted by flooding even between 1996 to 2019, when the study was completed. $52,000 is many’s annual incomes; this is also the average flood claim, and this number is rising with inflation. Nearly every property, you heard me right, faces the risk of flooding, even those that live inland. Anywhere it rains, water can gather, and flooding can happen.
Flood Insurance is too expensive, and I don’t need it because I am not in a high-risk flood zone.
So let’s refer back to the average claim of $52,000 without insurance, you will need to get a loan, and the loan has to be paid back with interest. That interest could be $6,878.25 if you paid off fast. In addition, add the hassle and sickening as you clean your home post flood. It is overwhelming. On average, flood insurance costs $909 annually, which is $75 a month compared to a loan payment of $621 to pay the loan in 10 years.
The federal government will grant me if I’m in a major disaster area.
The last major flood was Hurricane Ida, where five boroughs had countless basements flooding, and 13 people were killed. President Biden declared an emergency that allowed homeowners to apply for up to $36,000 in federal subsidies.
This sounds great; however, the program has had many issues. In many cases, the damages and expenses were much greater, but they were only given a small part of this amount. Still forcing homeowners to get loans to complete repairs and the FEMA grants were automatically applied to the balance of the loan, which made any funding irrelevant and forced many to take any savings they had to make repairs.
If the flooding victims had purchased a flood insurance policy, they could have avoided months and possibly years of heartaches, and they tried to navigate any funds (all be it little) that they could get
FEMA openly admits that their maps do not have accurate inland risk models for the intense rainfall we have seen past few years. It puts many homeowners at risk that have not to clue how much.
In addition, government flood policies tend to be more expensive than private flood policies, so the best way to get the best price is to ask a flood need to shop for your flood insurance.
Isn’t flood insurance only offered through the government program through the National flood insurance program (NFIP)?
Since the NFIP had a monopoly for nearly half a decade, we understand how many homeowners and property owners think it is their only option. But that is not true. Even if your current insurance agent is telling you that the NFIP is the only option, it shows how clueless they are or do not want you to save money because of greed.
Since 2012 there has been a growing private flood insurance market, and they tend to get better rates 20-50% less than the monopoly. Another factor in why the private market flood insurance could be a better option is the definition of a flood. FEMA flood policy is very specific, where there must be two or two acres. Many of the private flood insurance options have a broader definition of flood loss, and your neighbors don’t have to have the same loss for you to have coverage.
The NFIP limits how much coverage you can get, only offering the maxim of $250,000 for structure and $100,000 for contents. Most private flood policies can go to $2,500,000, and few will go to $15 million. There are also other goodies in the private flood policies. Many have a loss of use and temporary living, and a few will offer replacement costs without deductions for depreciation. Most private flood policies have a very quick claims service since they don’t have to deal with all the government red tape.