Don’t Buy Into the Myth That Flood Insurance Isn’t Necessary
The recent flooding that occurred due to Hurricanes Harvey and Irma was sobering to the United States. Thousands of families were displaced from their homes and many have yet to recover. One thing that became clear in the aftermath of the storms is that both renters and homeowners were unprepared. These significant weather events are a reminder that being prepared for inclement weather entails more than just purchasing homeowners and auto insurance. Many individuals who didn’t have flood insurance were left exposed.
Isn’t Flooding Covered by My Homeowners Policy?
Many homeowners or renters may believe their property insurance will cover them for water-related damage due to flooding. The truth is, most property insurance carriers will not cover flooding. In fact, if you have ever opened your renewal statement, you likely will see in big, bold letters a statement something like this: “THIS POLICY DOES NOT COVER FLOODING.” To put it simply, property insurance carriers consider flooding a unique peril that can’t be covered under a homeowners or renters policy.
Why You Should Consider Flood Insurance
Flood events can seem like an abstract idea especially to those of us who aren’t required by our mortgage company to purchase flood insurance coverage. It’s natural to think that if you don’t live near a body of water or low-lying area, flood insurance isn’t needed. This fails to realize however that flood zone determination maps can be misleading. In fact, according to the Federal Emergency Management Agency, “more than 20 percent of flood claims come from properties outside [italics added] the high risk flood zone.”
Residents of Houston, Texas and the surrounding areas are learning this first hand in the aftermath of Hurricane Harvey. No one contemplated what would happen if a single area received over 50 inches of rain in less than a week. If you watched the news after Hurricane Harvey, you likely heard the term “500-year” flood used to describe what occurred in Houston. Logically, those of us who aren’t hydrologists would assume this term means a flood occurs once every 500 years, but that’s not the case. This article from Vox.com explains why Houston was so unprepared for Hurricane Harvey. It also does a really good job of explaining how flood policy was created and what a “500-year” flood does and does not mean. In the case of Houston, some areas of the city have experienced a “500-year” flood multiple times in the past decade. Unfortunately as many uninsured residents in Texas are now learning, damage from flooding can amount to thousands of dollars and make your home uninhabitable for months.
How You Can Prepare
If you live on a plateau in a desert, chances are you do not need flood insurance. For those of us who live near water or in low-lying areas as is common in Florida and other coastal states, you should consider purchasing flood insurance. Coverage can be obtained at relatively low cost for those who are not in a high risk flood zone. A flood policy will usually cover your home and your personal belongings up to a certain dollar amount. If you are a renter, you should also consider purchasing a flood insurance policy especially if you live in a flood zone. Contact your insurance agent to receive a quote, discuss coverage, and more.
You should also discuss with your agent what is not covered by flood insurance. For example, when Hurricane Irma recently impacted Jacksonville, Florida where River Capital Advisors is located, there were several residential buildings along the St. Johns River that were flooded. One family we know lives in a high-rise building flooded during the storm. While their unit was not damaged (they live several stories up), they were unable to reach their unit for several days due to the flooding and incurred significant out of pocket costs for temporary housing, eating out, etc. Even though they had a flood policy, they learned the policy does not cover temporary housing or loss of use as a homeowners policy typically will. This family fortunately had an emergency reserve to absorb these extra costs. Knowing what your policy does not cover (whether because of deductibles, policy limitations, etc.) is important so you can maintain an adequate emergency reserve for situations like this.
The Future of Flood Protection
With every passing year it seems as if more and more Americans are living on or near the water. With this comes the risk of having our property damaged when weather turns for the worse and properly planning for flooding in the future is going to become all the more important. This is why it’s important to have adequate protection and emergency reserves in place. The team at River Capital Advisors, LC and our affiliated CPA firm Smoak, Davis, and Nixon, LLP is knowledgeable not only about insurance, but other areas of financial planning such as investments, retirement, and tax planning. If we can assist you and your family, please contact us.
River Capital Advisors, LC and their affiliated CPA firm Smoak, Davis, & Nixon, LLP are not insurance agencies. You should always consult with your insurance agent on matters relating to insurance products, coverage, and exclusions.