Tis the season of hurricanes, and this year has certainly been a busy one.
Hurricanes Harvey and Irma have wreaked havoc across the Caribbean and the United States. And with hurricane season lasting through November 1, there could be more.
In fact, Hurricane Maria is on its way to the Bahamas, an area already hit hard by Irma, and is trending toward the East coast of the United States.
As Americans are dealing with the devastation and loss that these hurricanes have caused, many victims have learned that they will be forced to recover without assistance from insurance, which is a daunting challenge.
Only a very small percentage of homes in the hurricanes’ path were covered by flood insurance from the National Flood Insurance Program – a federally-funded program that’s virtually the only flood protection available to homeowners.
It’s been estimated that approximately 70% of the homes damaged by Hurricane Harvey, which hit homes across southeast Texas and southwest Louisiana, did not have flood insurance coverage.
Their homeowners policies will help them recover from wind and roof damage, but flood damage is not included.
What’s alarming is that floods are the most common natural disaster throughout the United States.
So why isn’t a flood insurance policy be a no-brainer for consumers?
Why are so many homeowners choosing to skip flood insurance?
A number of factors affect a homeowner’s decision to buy flood insurance (or not).
People who perceive that their exposure to floods is high are more likely to buy it, all other things equal.
In addition, there are mandatory purchase requirements that force owners of mortgaged homes located in Special Flood Hazard Areas—areas at high risk for flooding—to buy insurance.
Unfortunately, 43% of homeowners believe that their homeowners insurance covers them for flood losses.
Typical homeowners policies don’t cover flood damage – at all. It would cover water damage, but not flood damage – yes, there’s a difference.
They also often believe that because they live on higher ground, they don’t live near the coast, or their home isn’t alongside a river, they’re immune from the devastation a flood can cause.
But even damage from heavy rain, resulting in flooding, can happen anywhere.
Another misconception by homeowners is that if a big storm hits, the federal disaster aid will cover their damage, which is rarely the case. A typical disaster grant is only around $5,000; anything more is a low-interest loan that the homeowner must pay back.
Ouch. Talk about pouring salt in the wound… when a homeowner dealing with the aftermath of a flood thinks he’s getting some financial relief only to find out it’s a loan that must be paid back.
Other factors contributing to homeowners deciding to forgo the purchase of flood insurance also comes into play.
For example, the a lack of information, the difficulty of calculating flood risk, and the belief that they are in a low-risk zone.
Homeowners must purchase flood insurance if they’re in a high-risk flood zone and have a federally insured mortgage. But after a catastrophic storm like Harvey, it’s instantly clear why flood insurance is crucial even for lower-risk properties.
Difference between flood damage and water damage
Broken pipes, overflowing bathtubs, toilets that backup, burst water mains, damaged washing machine hoses – these types of claims are typically covered by a standard homeowners policy.
Note: check your homeowners policy, or with you Insurance Advisor, to make sure you have these coverages – they’re readily available and cost effective.
If water damages your home, your first step is to determine whether you have a water damage claim or a flood claim.
The difference between water damage and a flood damage claim is best distinguished by the Federal Emergency Management Agency's (FEMA) flood definition:
A flood is defined as a general and temporary condition of partial or complete inundation of two or more acres and two or more properties of normally dry land. Flood damage can only be caused by the following water sources:
- Overflow of inland or tidal waters
- Unusual and rapid accumulation or runoff of surface waters from any source
- Collapse of land along the shore of a lake or similar body of water as a result of erosion or undermining caused by waves or currents of water exceeding anticipated cyclical levels that result in a flood as defined above
Simply put, the main difference between a flood claim and a water damage claim is that the water comes from a natural source, and two or more properties are involved (if you reside in a generally residential versus rural area). If you and your neighbors are all having water issues due to heavy rains and/or rising waters, then you are likely dealing with a flood insurance claim.
How many American homeowners have flood insurance?
It is difficult to determine exactly how many homeowners have flood insurance. The National Flood Insurance Program had just under five million policies in force as of June 30.
Of these policies, approximately 68% were on single-family homes and 21% on condo units. There is no source on how many private flood policies are in force, but it’s seemingly very small relative to the number of National Flood Insurance Program policies.
In recent years, the number of such policies has been dropping across the country. Some of the counties hardest hit by Harvey, for example, such as Harris (which includes Houston), have experienced significant declines.
A more revealing—and more difficult to ascertain stat—is the share of homeowners in a disaster area who actually have flood insurance.
In Harris County for example, real estate data company CoreLogic estimates that only about 15% of homeowners are insured for floods.
So you live in a low-risk area – is flood insurance necessary?
You may be thinking, “I live in Ohio, so I don’t have to worry about hurricanes and flooding.”
However, the remnants of a hurricane often make their way to the Midwest by dumping several inches of rain across the area. And standard homeowners policies do not cover damage from floodwaters – so just because you’re not located in a high risk flood zone, does not mean you don’t need coverage.
In high-risk areas, you have a 1 in 4 chance of experiencing a flood over the life of a 30-year mortgage. But the truth is, you can live miles away from water and still be at risk of flooding.
In fact, nearly 25% of flood insurance claims come from moderate- to low-risk areas. That’s because it doesn’t take a major body of water, or even a major storm, to cause a flood.
Anything from new development to a slow-moving rainstorm can cause flooding.
Don’t make the mistake of assuming that you don’t live in a flood zone, and therefore, you’re not at risk – everyone lives in a flood zone. Take the time to understand your risks and what types of coverage you may need.
What is flood insurance?
Homeowners insurance does not cover damage to a home caused by flooding. A homeowner must have a separate policy to cover flood-related losses, defined as water traveling along or under the ground.
Most flood insurance policies are written by the National Flood Insurance Program (NFIP), which was brought on to help alleviate some of the financial devastation caused by flooding.
Historically, flooding has brought damage and destruction to communities across the United States, so in 1968 the NFIP was created. The NFIP, overseen by the Federal Emergency Management Agency (FEMA), enables homeowners, business owners, and renters in participating communities to purchase federally backed flood insurance. This insurance is designed to provide an alternative to disaster assistance to meet the escalating costs of repairing flood damage to buildings and their contents.
You can get flood insurance if:
- You live or own a business in a high-risk area (or Special Flood Hazard Area, known as an SFHA)
- You live or own a business in a moderate-to low-risk area—and possibly at a lower cost
- Your home or business has been flooded before
- Your mortgage company doesn’t require it
Understanding the basics
All properties are at some risk for flooding. The NFIP is dedicated to making property owners and renters aware of the need for flood insurance—not only among those who live and work in high-risk areas, but those in moderate- to low-risk areas, too.
Properties located outside of the mapped high-risk areas are not exempt from flooding. Their risk, while reduced, is not eliminated.
Consumers need to know that homeowners policies do not cover flooding. Only a flood insurance policy will financially protect you from flood damage costs.
Flood insurance is available to homeowners, business owners, and renters for both a building and its contents.
Homeowners can insure a home for up to $250,000 and its contents for up to $100,000. Renters can cover their belongings for up to $100,000. Non-residential property owners can insure a building and its contents for up to $500,000 each.
The average premium for a flood insurance policy is about $700 per year.
What are the requirements?
Residents and business owners who live or work in an SFHA are required to purchase flood insurance if they have acquired a loan from a federally regulated and insured lender, and they must carry the insurance for the life of the loan.
Those outside of mapped SFHAs can also purchase flood insurance, and they may be eligible for a lower-cost policy (called a Preferred Risk Policy). The NFIP encourages all residents to learn about their flood risk, and to protect themselves with flood insurance.
How to purchase flood insurance
Flood insurance is sold and serviced by insurance agents in more than 22,000 communities nationwide. To purchase a policy, reach out to an Advisor at Hill & Hamilton at (937) 592-9076, or to review a list of agents in your area visit: FloodSmart.gov/purchasefloodinsurance.
Don’t delay purchasing a flood insurance policy as there’s typically a 30-day waiting period when purchasing a new policy. There are exceptions to the waiting period, but you’ll want to speak with one of our Insurance Advisors to see if any of those exceptions would apply to your situation.
What’s insured under building property coverage?
- The insured building and its foundation
- The electrical and plumbing systems
- Central air-conditioning equipment, furnaces, and water heaters
- Refrigerators, cooking stoves, and built-in appliances such as dishwashers
- Permanently installed carpeting over an unfinished floor
- Permanently installed paneling, wallboard, bookcases, and cabinets
- Window blinds
- Detached garages (up to 10% of building property coverage); detached buildings (other than garages) require a separate building property policy
- Debris removal
What’s insured under personal property (contents coverage)?
- Personal belongings such as clothing, furniture, and electronic equipment
- Portable and window air-conditioners
- Portable microwave ovens and portable dishwashers
- Carpets not included in building property coverage (see above)
- Clothes washers and dryers (even in a basement)
- Food freezers and the food in them (even in a basement)
- Certain valuable items, such as original artwork and furs (up to $2,500)
What’s not insured either by building property or personal property coverage?
- Damage caused by moisture, mildew, or mold that could have been avoided by the property owner
- Currency, precious metals, and valuable papers such as stock certificates
- Property and belongings outside of a building, such as trees, plants, wells, septic systems, walks, decks, patios, fences, seawalls, hot tubs, and swimming pools
- Living expenses such as temporary housing
- Financial losses caused by business interruption or loss of use of insured property
- Most self-propelled vehicles such as cars, including their parts (see Section IV.5 in your policy)
*These lists are not exhaustive, so if you have questions about specific items that are covered or excluded, contact one of our Insurance Advisors today.
Don’t risk the consequences
Just a few inches of water can cost thousands of dollars in damage to walls, floors, furniture, carpets, and appliances. Flood insurance can help you avoid the financial consequences of a flood—and gain peace of mind.
Flood insurance from the National Flood Insurance Program is available not only in areas at high risk of flooding, but in moderate- to low-risk areas as well. Policies are sold through nearly 90 insurance companies nationwide, and we can help you tailor the coverage that’s perfect for your specific needs and within your budget.
To assess your flood risk, contact one of our Insurance Advisors today… We’re here to help!
About the author
Matthew T. Simon, CIC, CPCU
Since 2006, Matt has been a Licensed Insurance Advisor with Hill & Hamilton Insurance, an industry leading, independent insurance agency headquartered in Ohio. Prior to joining the team at H&H, he worked as an Underwriter with a regional insurance company located in Columbus, Ohio.
Matt is a Certified Insurance Counselor (CIC) and a Chartered Property & Casualty Underwriter (CPCU), having successfully completed the rigorous coursework and exams to earn these prestigious designations.
He’s the Vice President at H&H, serves on the Board of Directors for the Ohio Insurance Agents Association of Ohio and the Associated Risk Managers of Ohio. In 2013, Matt was awarded and recognized as the National Young Insurance Agent of the Year.