With hurricane Laura pounding the Texas and Louisiana coast line, now is a good time to update everyone on flood insurance. While hurricane Laura is a terrible tragedy, let’s try to bring some levity to this bad situation. We’ll do that by starting off with a true, but rarely stated point about flood insurance. Flood insurance is so boring, even many insurance companies don’t offer it. Instead of private insurers offering flood insurance, now the federal government offers flood insurance.
This blog post addresses ten common questions about flood insurance. We keep it light so you don’t drown in the details of such a boring topic. However, if you live in an area that could flood, you should read this post.
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Ten Common Questions About Flood Insurance
Q1) I live in an area that flooded before, but am not required to have flood insurance. Why not?
You are not required to have flood insurance if you don’t have a mortgage on your home. Flood insurance may not be required if your home is in a low-risk flood zone. The requirement for having insurance against a flood is based on meeting two criteria. One, your home is in a high-risk flood zone. Two, your mortgage lender is federally regulated or insured. An example of a federally insured loan is an FHA backed loan.
Q2) My homeowners insurance includes water damage. That means I don’t need flood insurance, right?
No. Water damage covered by homeowners insurance is for items like broken pipes and sewer backup. Typically this type of coverage is very limited. Flood waters are excluded from homeowners policies. To be covered for flood damage, you must buy a separate insurance policy specifically to cover damage from flood water.
Q3) I have both homeowners insurance and flood insurance. Does the deductible on my homeowners insurance cover my flood insurance deductible?
No. Homeowners insurance and flood insurance are completely separate.
Q4) My car was damaged in the flood. Will my flood insurance pay the cost to repair?
No, the following is a list of items that are not covered by an insurance policy for flood water damage:
- Automobiles and motorcycles
- Possessions or property outside the insured structure. For example, swimming pools, hot tubs, septic system, pants and decks.
- Temporary living expenses.
- Business interruption costs or losses due to not being able to use the property.
- Damage caused by moisture, mildew or mold that could have been prevented.
- Valuable items such as stock certificates or precious metals.
Q5) Why do so few people have insurance for flood water damage?
There are several answers to this question. First, people don’t like to think about nightmare scenarios. Therefore, most people ignore the thought of a catastrophic flood. Second, insurance against flooding is expensive. In some cases, homes become unaffordable due to the cost of the insurance being so high. Third, only federally regulated or federally insured mortgage loans require this type of insurance. In fact, even these loans only require flood insurance when they’re in what is considered to be a high-risk flood zone. Finally, the flood zone maps aren’t as accurate as they should be. Your home may be in an area that should be designated high risk, but in fact is designated low risk.
Q6) Part of the roof blew off my home, then it flooded. Does my homeowners insurance pay?
If the roof blew off first, homeowners insurance should pay for the damage. However, the forensic science of what caused the damage, wind or water, is an area surrounded by controversy. Some companies have been accused of determining the cause of damage as water damage when many factors point to wind damage instead. The reason for this is that private insurers are not responsible if they can attribute the cause of damage to water. If you end up in this situation, get professional help. Professional help could include a public adjuster or an attorney.
Q7) If I get flood insurance, does that mean I don’t need homeowners insurance?
No, flood insurance and homeowners insurance are completely different. They cover different risks. In fact, they aren’t even underwritten by the same companies. While they may be purchased through the same company, the insurance against flooding is underwritten through the federal government.
Q8) My new neighbors next door were required to get flood insurance. Nobody told me I had to get it. Why not?
You probably got your mortgage years ago when the area was not designated as a high-risk flood zone. Alternatively, your lender may not be federally regulated. Regulators that are not federally regulated or insured have more flexibility on whether they require insurance for flooding.
Q9) I refinanced my home and was forced to get flood insurance. Now my mortgage is less, but my total payments after flood insurance are more. How can this happen?
The maps used for flood zone designation are often inaccurate and poorly maintained. The federal government has been working to update these. It’s likely that since you got the prior mortgage and you refinanced, changes to the flood zone maps put you into a category for high risk of flooding. This is a risk of refinancing. You can check the flood zone maps on the website FloodSmart.gov.
Q10) Is Flood insurance worth the price?
This is an individual decision that must be made for each property. Factors to consider are the probability of a flood and whether you can afford to rebuild if you were flooded. However, looking at the cost of flood insurance from a U.S. wide perspective, flood insurance is a good deal. On average, flood insurance is significantly under priced. The National Flood Insurance Program (NFIP) remains solvent through infusions of taxpayer dollars.
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