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Does Everyone Need Flood Insurance?

With every house I financed in Florida, came the requirement from the lender that I purchase flood insurance.  I really had little idea what flood insurance was or why I needed it when I bought my first home back in the mid 1980’s.  If you have been following the news in recent days, you no doubt are aware of the floods in the Midwest.  The floods currently taking place are being described as 500 year floods.  What this means is that based on historical statistics, the likelihood of a flood of this magnitude is only once every 500 years!  Mortgage lenders regularly rely on government statistics and 100 year flood zone maps in making the decision on whether to require a borrower to maintain this insurance.  The magnitude of the current flooding in the Midwest is literally beyond any measurement or statistical model we have.  This means that many people, who would not normally be in areas considered flood risks may have completely lost their homes and have no insurance.  This raises the question, should everyone have flood insurance?

I am not an expert on land surveying and don’t plan to pretend to know how one goes about assessing their true flood risk.  We all know now that the current flooding in Iowa and Illinois really establishes the reality that government statistics and flood zones can mean very little.  In fact, in researching this article I learned that 25% of all flood claims come from low to moderate risks areas. Imagine losing your home to the current flood in the Midwest and facing the reality that you are still legally obligated to make the ongoing mortgage payment, even though your home is completely destroyed!  Talk about reaching a financial bottom, but this is the reality for tens of thousands of people this week in Illinois and Iowa.

With the average annual cost of flood insurance (residential) at only about $1 per day or $350 per year, I am persuaded that everyone should probably have this protection unless you live on a mountain top or such a high elevation that you are absolutely convinced you have no flood risk.  Flooding is a risk that is very hard to quantify.  Whether you live in Florida and face the risk of flooding from hurricanes, or Colorado and your risk is melting snow, flooding seems to be happening everywhere these days.  If you are in an area that is beginning to show signs of a problem, you should act quickly as there is a 30 day waiting period before coverage will take effect.  There is a little known exception; if the flood maps in your area have been updated within the last 13 months, you can obtain flood coverage with only a one day waiting period.

There is only one national flood insurance program available, and that is from the federal government.  You may end up buying your policy through an individual agent, but the final insurer is Uncle Sam.  In order to be able to obtain flood insurance your community must be a participant in the program.  Click here to find out if your community participates or not.

Other facts about flood insurance:

  • Floods and flash floods happen in all 50 states.
  • Everyone lives in a flood zone. 
  • Most homeowners insurance does not cover flood damage.
  • Just an inch of water can cause costly damage to your property.
  • Flash floods often bring walls of water 10 to 20 feet high.
  • Flood insurance does not cover improvements to your basement or other personal property in your
  • If you rent your home, you can obtain coverage to protect your personal property.Hurricanes, winter storms and snowmelt are common (but often overlooked) causes of flooding. Federal disaster assistance is usually a loan that must be paid back with interest. For a $50,000 loan at 4%  interest, your monthly payment would be around $240 a month ($2,880 a year) for 30 years. Compare that to a $100,000 flood insurance premium, which is about $400 a year ($33 a month).
  • Further Information on Flood Insurance:

    Flood Insurance Myths and Facts

    National Flood Insurance Program

    Agree or disagree, have your own suggestions?  Add a comment below.

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    James L. Paris
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