Why is flood insurance separate? Would it really make home owner’s insurance prohibitively expensive to add flood insurance to standard home owner’s insurance?
I don’t know, but IIRC I used to have it (it came with my policy) and then it was removed.
If you do pick it up, make sure you understand it and that you’re VERY clear about what kind of coverage you’re getting. Insurance that covers water pouring in through your basement windows or coming up thorough your foundation during a heavy storm won’t cover a sewage backup. If have insurance for a sewage backup and sump pump fails during a heavy storm, you’ll be out of luck. Grey water, brown water, clean water, rain water…all different things. If you have a finished basement and you get three feet of sewage $25,000-$50,000 of damage can happen in a matter of minutes. My parents had $25,000 worth of coverage and ended up really lucky that their basement flooded with 3 feet of sewage twice in one week (two horrible storms and construction work up the road) so they got to make two claims. It took $40,000+ to get everything back to normal. If it had only happened once, they would have paid a lot out of pocket.
Make sure you get the one you want or get both if that’s what you’re looking for.
Insurance is about risk combined with the ability to both calculate and price it, When an insurance company evaluates a dwelling for a standard homeowner’s policy, it compares the cost to replace the structure to actuarial tables showing the probability of a future loss along with the probable amount of loss and arrives at an annual premium. This is based on the policy covering fire, wind, hail, etc. These actuarial tables will also predict the percentage of homes affected by these perils within a particular zip code. The key here is that in most instances, no single peril or event will affect 100% of the homes in a specific area. In other words, if a hurricane hits a specific area, actuaries predict less than 100% of homes will be damaged in a similar manner with corresponding dollar losses. Using these tables as a guide, a premium is charged that is affordable by the majority.
Flood is a different animal. It affects very close to 100% of homes it touches and the damage sustained is similar and expensive to repair/replace. Private insurers are aware of this risk and could sell a flood policy on a home but the premium would reflect this risk and make the policy economically unattractive. If the private sector was the only option for flood coverage, most flood prone homes would go uninsured because the premium would be too high.
The government to the rescue? In 1968, NFIA (National Flood Insurance Act) was implemented to offer flood coverage at an affordable premium by creating the NFIP (National Flood Insurance Program) to handle flood losses. It’s not inexpensive but when you consider the risk of loss faced by the program, it’s a bargain because the true underwriters are the taxpayers whether they have a flood policy or not. It’s not as if NFIP has free access to taxpayer money but the access in itself is a huge economic advantage over what private insurers have in their coffers when facing catastrophic losses. Another advantage is that when NFIP borrows money, they do not answer to stockholders who may be in an uproar over falling stock prices and returns.
Without NFIP, living and building along the coast or other flood prone areas would becomes unwise for all but the very wealthy who may be able to adsorb an uninsured loss. Ultimately, this ability to purchase flood insurance encourages coastal development but with climate change and rising oceans tapping us on the shoulder, I believe coastal flood insurance should be reevaluated or perhaps phased out.
You’ll probably find flood insurance is very expensive, let us know what you find out. Definitely a reason for me to stay out flood-prone areas.
Here’s a link from NinetyWt’s signature: http://www.floodsmart.gov/floodsmart/
We were going to add flood insurance this past year, until we realized that it’s only good for overland flooding - not sewer backup or anything else. Since that is generally how our area floods (sewer backs up first), it’s not really especially useful and is quite expensive.
Most insurance carriers don’t even offer true flood insurance. If you live in a designated flood plain under the National Flood Insurance Program, you can purchase flood insurance that is backed by the government.
If you don’t live in a designated flood plain, I doubt you would be able to find a carrier to insure you.
I’m not looking for flood insurance. I asked merely because I see those commercials for flood insurance and wonder why it isn’t part of basic home-owner’s insurance.
Ah OK. You might be surprised what your insurance doesn’t cover. Mine didn’t cover earthquakes which was fine until we had one.
If you are NOT in a flood plain, then you might find the coverage to be relatively inexpensive.
It never hurts to ask.
You can contact your regular insurance carrier, and it can be added to your homeowner policy, but the insurance itself is provided by the Federal government.
~VOW
My understanding of flood insurance, from another thread.
We have sewer backup coverage on our policy and it doesn’t add that much to the cost (if it’s 100 a year, I’d be surprised). Flood insurance… I have no idea how much that would add, but as others have noted the potential loss is so much more devastating.
I have to assume it’s tied to the “flood plain” your house is in - which is some kind of measure of how often the area would be considered likely to flood. A friend learned the hard way that statistics lie. She and her husband had considered adding flood insurance, and their agent talked them out of it, saying that the house was in a 100-year plain at worst. The next year… freak flash flood. Their first floor basically had to be gutted and replaced, the house was uninhabitable, and for some reason there was no federal disaster money (loans or whatever) to help. Too localized, I guess.
Right - it encourages people to build in areas where Mother Nature says they’d be crazy to.
One of the penalties for communities who choose not to participate in NFIP is a percentage reduction in federal/state flood disaster assistance.
My understanding is that you can’t get flood insurance unless your community is in NFIP, but I could be wrong about that. It doesn’t cost anything for a community to join, but there are a lot of requirements, one of which is setting up a board or agency that oversees new construction. It’s fairly complicated, and something a lot of small towns aren’t willing or able to undertake.
I agree people should heed Mother Nature. However, the government offers a policy to protect the investment of these “crazy” people who continue coastal development or rebuild structures damaged by flood because there is little financial incentive not to continue the status quo.
So why does the government do this? Is it unfair that the wealthy, who can afford to rebuild without being subsidized, have homes in these picturesque locations? So the government feels the need to subsidize those with less means so they can lower their risk of having a home there as well? Seems like bad policy to me.
Right. It makes sense to live on the shore for as long as you - or your favorite politician - can ensure that your not-really-at-risk fellow citizens will be obliged to bear much of the cost each time a storm produces expensive damage.
To the OP, flood insurance is not in your homeowners policy for several reasons. A couple:
One, remember that the federal government, via the Army Corps of Eng, is responsible for much flood control in the US and occasionally has to intentionally cause a flood in an area to prevent greater damage (dams bursting, etc.). Put this under the “you break it, you buy it” heading.
Two, we actually want people to live in some of these areas, or we’ve decided it is politically expedient to allow it; but no sane, self-respecting insurance compnay is going to write such policies, at least not at any rate (price) you would want to pay. So the federal govt subsidizes the price by selling the coverage itself. And now has billions of dollars of related debt.
Insurance isn’t magic – you can spead costs over people or time or both, but the money comes from someone. Whether those people are insurance customers or taxpayers, or time means years or generations (paying off accumulated debt), the basic mechanism is the same.
Re flood insurance - our premium is about $1800 annually and we have the max ($250,000) coverage for the structure. Contents can be added to that for an additional premium. We opted to not cover contents. It covers “rising water” which in our case is the ocean and bay. We got about 15" of water in our house thanks to Sandy. The adjuster will be here Sunday but I’m sure we will easily exceed the premiums we’ve paid over the last eight years. Carpet, drywall and paint, heater and hot water heater (considered part of the structure, not contents) along with uncovered items like washer/dryer, mower and pressure washer. We put the furniture up on lawn furniture and moved the electronics to a higher floor. No wind damage so no homeowners claim. The very wealthy will be dipping into their pockets for everything over $250K. One local guy lost $70,000 in deck furniture alone. The ocean came in his front door and went out the back, taking everything with it and leaving two feet of sand. behind.