Don’t Wait for the Flood
Homeowners insurance policies specifically exclude flood. All of them. Yours, too. That’s something a lot of people don’t know and find out the hard way. You don’t have to live on the coast to be the victim of a flood, either. My wife has a pretty tragic story from her childhood about flooding. It’s served as something of a lesson for us as we buy the new house.
When my wife was little, her family lived somewhat near (within a mile) a river. Thing is, to look at the river, you’d never even consider the possibility of it overflowing its banks. The water is way down a drop-off - probably 15-20 feet below the level of the town. Her parents actually inquired about flood insurance, but were told that the area was in a hundred year flood plain and they couldn’t buy flood insurance.
I guess it was the hundredth year because the unthinkable happened and after a particularly heavy rain storm, the river rose and didn’t stop until half the town was underwater. My wife’s childhood home was ruined. When the water receeded, the first floor was buried in mud.
Her parents’ homeowners insurance, of course, did not cover the damage. Homeowners insurance policies - all of them - specifically exclude flood. Yours, too.
Her family got through the ordeal through a combination of very hard work, luck, and generosity, but it was a lesson my wife never forgot.
Flash-forward to our recent home-buying.
Our new house is within several hundred feet of an intermittent stream. Right now the area’s in a drought, so there’s nothing there. But it doesn’t take a lot of imagination to picture that ‘little stream’ growing into a rapidly-expanding lake. In fact, the area is peppered with lakes of various sizes. Not only that, but being on the eastern part of the country, we’re within reach of hurricanes.
Flood insurance basics
Here’s what I learned when I inquired about getting flood insurance for the new house.
- Flood insurance is federally regulated. That means the government sets the rates - everybody charges the same thing for the same level of coverage. Here’s the FEMA website for flood insurance.
- Your home has a 26% chance of being damaged in a flood over the course of a 30 year mortgage compared with a 9% chance of damage by fire.
- One third of claims paid last year were in ‘low risk’ areas.
- There are three categories of risk - low to moderate, high, and high-coastal.
- There is no place that can’t be insured against flood.
- The maximum insurance you can buy through FEMA is $250,000 dwelling and $100,000 possessions. If you want more, you go to independent insurers for what’s called “excess coverage.”
- There’s a 30 day waiting period for coverage to begin. It can be waived if you haven’t closed on your house yet.
- Homeowners and renters both can buy coverage.
We got the maximum coverage and it was pretty reasonably priced - $352/year - since we’re in a low/moderate risk area. The same coverage for a coastal dwelling is a whopping $5,358. There’s a great reason to reconsider that beachfront property, huh?
March 12th, 2008 at 8:23 am
[…] When we bought our house, the lender said we weren’t in a flood zone so we didn’t need to buy flood insurance on top of our homeowner’s insurance. I figured if the bank isn’t worried about it, then I shouldn’t be either. Apparently this might not be the best idea. […]
March 12th, 2008 at 10:06 am
See http://www.fema.gov/plan/prevent/floodins/infocon.shtm for specifics on NFIP.
Your 26% stat seems to misrepresent. You should check your flood zone via http://msc.fema.gov to get the specifics by property location. Zone A, 1% chance. Zone B, 0.2% chance. If you’re in Zone X, it means you have less than a 0.2% chance of having a flood impact your property.
Also, be aware NFIP policies are limited in coverage. See http://www.fema.gov/pdf/nfip/summary_cov.pdf
March 12th, 2008 at 10:12 am
I pulled that 26% stat straight from the FEMA web site. I see what you mean, though, about it possibly being misleading. That obviously wasn’t my intent - I’m not trying to scaremonger, just share some surprising things I learned through my own experience.
March 12th, 2008 at 1:23 pm
March 12th, 2008 at 1:23 pm
March 12th, 2008 at 5:25 pm
@Joe: The term “100 year flood” is actually pretty misleading, because it sounds like it will only happen once every 100 years. Actually, it’s defined by having 1% probability of flooding each year. Over 30 years, there is 26% probability of flooding (1-0.99^30).
March 13th, 2008 at 1:46 pm