What’s the #1 natural disaster in the US? Any guesses? I bet if I polled ten people, eight out of ten would answer incorrectly. This disaster isn’t usually on the radar of the average insurance client. I see coverage for it purchased only if a mortgage company requires it. I and my agents at Beacon Insurance Advisers always ask about this insurance coverage. We provide information about this natural disaster in every new business appointment, but very few clients choose to purchase this insurance unless required by the mortgage company. Have you guessed it yet? FLOOD! Floods are the most common and devastating natural disaster in the US; yet, too many clients ignore this biggest disaster. Flood damage occurs when a big quantity of water flows over land, seeping into your home through doors and windows.
The media along with insurance advertisers do a good job of showing the importance of insuring your property from fire, theft, wind, hail, and other risks, but do little to show the importance of flood insurance. Flooding damage occurs less frequently than other weather-related property damage, but flood damage is devastating. And the clean up takes a long time.
In my humble opinion too many clients think the government will take care of them in any flood disaster because of the Federal Emergency Management Act (FEMA). This notion is such a huge mistake. I tell my clients the National Flood Insurance Program (NFIP) is a terrible coverage program, but it is better than nothing. According to FEMA, all 50 states have experienced losses due to floods in the last 5 years. Yes, you read that correctly—EVERY state.
In 2016 three regions of the U.S. faced flooding as a result of a 1-in-1000-year rain events. More staggering is the fact that 20% of flood claims every year involve properties located OUTSIDE of the high hazard flood zones. Every home is in a flood zone, it just may be a low risk flood zone. This statistic means one in five floods happened in low hazard flood zones. Mortgagees are not required to purchase flood coverage in these zones, but it would be wise to invest in flood insurance to protect your property. On a good note, flood premium costs are lower in these low risk flood zones.
1 in 100
So what does the 1 in 100 year flood risk mean? Does it mean that floods can only happen once every 100 years? Absolutely not!. The 100-year flood risk means there is a 1% chance EVERY year that a flood event of this magnitude will occur. Another interesting FEMA fact says homeowners face a 26% chance of experiencing a 1000-year flood event during the life of a 30 year mortgage. Do you understand that is a one in four chance? Are you willing to play those odds? Many people play those odds because they do not understand the devastating results.
Let’s consider a few interesting facts that I hope encourage you to purchase flood protection.
1. Chances of a 25-year flood are 4 chances in 100 or 4%.
2. Chances of a claim from theft are 2 chances in 100 or 2%.
3. Chances of a residential fire are 4 chances in 10,000 or .04%.
Can you see how the public perception regarding flood risk is terribly wrong? Yet you don’t see advertisements for flood insurance running on television during every commercial break.
I read an article after Hurricane Florence that said most insurers did not experience substantial losses because Florence was more of a flood event than a wind event. And you guessed it, flood protection is excluded on most homeowners insurance policies. What was devastating, however, is the uninsured flood losses to homeowners which are calculated to cost nearly $20 billion. What will these clients do? If your home is destroyed by flood, and you don’t have a flood policy, would you have to get another loan to repair your property? What about replacing the contents of your home?
A colleague showed me the video below of water running between two houses in Kingston, Tennessee during a recent rain. You can clearly see water entering the door of the home.
Simply stated, when water hits the ground before it enters your home, it is a flood issue. Many people don’t understand this concept and expect their homeowners policy to pay. They don’t understand the full effect of not having flood protection until a claim occurs. I always say, “claim time is the wrong time to find out what coverage you have and what coverage you don’t.”
Several good choices for flood coverage are available now with private insurers entering the flood market. The good news is that these companies offer even more options with their flood policies. Remember me saying the National Flood Insurance Program policy is a bad policy although it’s better than nothing? Private flood insurers can offer better policies.
Another element to remember is that many times you will need a flood elevation certificate to determine the correct premium for your flood policy. If an agent tells you something different and just ballparks the price, find another agent. Last year a prospective client called my office to ask about a flood policy. They wanted a ballpark cost without getting an elevation certificate. I estimated the cost would fall somewhere between $1000 and $5000. Not liking my answer, the caller found an agent who ballparked the cost at $1000 and wrote the business with him. After purchasing the home, the elevation certificate showed the home was located in a high hazard flood zone. Guess what happened to the price of the flood policy. The premium went up to $4800 yearly! Was I close on the premium? Would the increased premium have changed their minds on the purchase of the home? Absolutely! The couple could barely afford the additional $400 on their monthly payment because of the flood policy.
FEMA flood maps have changed, so be careful if you are buying a home from someone who has lived in the home for years. Flood insurance may have not been required by a mortgage company when they bought the home, but may be required now. I see this situation too many times. When a property is located in a Special Flood Hazard Area (SFHA) and flood insurance is available under the National Flood Insurance Act, a national bank must require flood insurance coverage before making, increasing, extending or renewing any mortgage loan. As you can see, banks are required to mandate flood insurance if the property is in a Special Flood Hazard Area.
I know it is not at the top of your mind, but I advise getting a flood estimate to protect your home. If you are in a preferred flood zone, you may be surprised by the economical premium. Don’t don’t let your home go unprotected from the #1 natural disaster!