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Why Flood Insurance May Not Be Enough Protection for Your Home
I think at this point, given the multitude of weather-related events that have occurred, we have all seen online and on TV the damage and downright destruction a flood can cause. You've probably heard the stat that 80% of homes in Houston, Texas that were affected by Hurricane Harvey related flooding, did not have flood insurance. That's because some of the households live in a moderate- to a low-risk area for flooding, so homeowners didn't believe the need was great enough to purchase flood insurance from either Federal Emergency Management Agency (FEMA), who runs the program, or a private firm. However, the National Flood Insurance Program (NFIP) states that 25% of all flood claims come from outside of the high-risk zones. That means there's a chance that flooding can happen anywhere, regardless of where your home is located.
As a home, condo, or apartment owner, you have choices to protect you and your family from a flood event. Let's take a look at why it's important to consider excess flood insurance on top of the standard coverage.
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How Home Prices Effect Flood Insurance
If you do decide to purchase standard flood insurance through the NFIP, did you know that the federal policy maxes out at $250,000. As of August 2017, the average price of new homes sold in the U.S. was $368,100, That's a significant gap in coverage if your home was to experience a catastrophic loss due to a flood. Essentially, if your home costs $368,100 to rebuild—normally it costs more to rebuild than when you first purchase your home due to inflation of the cost of materials, labor, permits, etc.—you and your family would be responsible for the $118,100 difference to build a new home. If you still have a balance on your mortgage, a good fair portion will need to go toward paying off the loan on a house that is uninhabitable. Leaving you with a fraction of your policy payout to re-build and start over.
Parallel to the cost of the home itself, there's also the matter of your personal belongings such as clothing, electronics, appliances, and furniture. The NFIP policy only covers $100,000 for belongings lost in a flood. If you have a household of four or more, that price will quickly exceed the $100,000 limit.
At this point, maybe you've decided that the basic flood insurance policy isn't going to cut it because your home is worth more than the standard policy covers. This would make excess flood insurance a potential solution. In order to add excess flood insurance, you need to prove to an insurance agent that you already have standard flood insurance.
How Would Excess Flood Insurance Help?
The biggest upgrade to standard flood insurance is the simple fact that excess coverage provides up to $5 million to rebuild a home or business in the event of a flood. Additionally, excess flood coverage provides up to $2 million in most states ($1 million in Florida) to replace stand-alone contents that may be valued above the NFIP limits. Again, as excess flood insurance goes above and beyond the standard coverage limits, the program offers funds for your family's living expenses to help you through the transition process.
We've seen the destruction and power of flood waters in recent months. If flooding is a concern to you and your family and the price to rebuild your home exceeds the NFIP policy limit, then excess flood insurance may be coverage to consider.
Much like any other insurance program, your specific limits will depend on a number of factors so it's best to speak with an agent directly to determine what your limits and premiums will be.
Contact an agent today at 866-541-2560 or visit SWBC.com.
Tyreo Harrison
As Executive Vice President, Lending & Insurance Solutions, Ty Harrison leads teams of lending and insurance professionals that are dedicated to delivering value-added programs, services and technology tailored to address the needs of lenders, loan servicers, portfolio managers, mortgage brokers, insurance agents and insurance brokers.
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