According to the Federal Emergency Management Agency (FEMA), flooding is the nation's most common natural disaster that affects homeowners nationwide. Yet it's important to know that a standard homeowner's insurance policy excludes flood coverage. Many people wrongly assume that the government will cover financial losses if they suffer flood damage. However, federal assistance is only available when the President formally declares a disaster. Even then, that assistance often arrives in the form of a loan, which must be repaid with interest.
What's more, 30 percent of annual flood claims are submitted by homeowners who reside in low- to moderate-risk areas. It's this last statistic which often causes the most pain, according to Kari Gier, Senior Account Manager at HUB International Mountain States Limited.
She shared, "I had a client devastated by wildfire. The fire was followed by copious rain but there were no longer any trees or vegetation to hold the water back. So then there was flooding. The client had no excess flood insurance coverage in place and in their mind, why would they need it? They live nowhere close to a flood zone."
In addition to paying $25,000 to hire a crew "to haul mud and debris away from the house after the rain," the client incurred separate deductibles for fire and flood totaling $82,000. "The client had a hard time understanding that each claim resulted in a different deductible. In this case, they would have benefitted enormously from excess flood coverage," she said.
Flood insurance covers direct physical and property loss caused by "flood" conditions. The following is the official definition of those conditions, offered by the National Flood Insurance Program:
"[Flooding is] a general and temporary condition of partial or complete inundation of two or more acres of normally dry land area or of two or more properties (at least one of which is your property) from: overflow of inland or tidal waters; and unusual and rapid accumulation." This explanation includes flooding due to natural disasters such as hurricanes and tornados.
Issues surrounding flood insurance are clearly very complicated and personal. Yet the water, pardon the pun, is about to get murkier.
On March 21, President Obama signed the Homeowner Flood Insurance Affordability Act of 2014(HIFAA) into law. While most aspects of the legislation are good news for the general public, rates are on the rise and Gier distilled a few points to which homeowners will want to pay particular attention:
- Primary Residence Definition revised - According to Gier, "You'll have to live in your home more than 50 percent of the 365 days following the policy effective date, in order for the property to receive a primary residence rating." In addition, based upon when the home was built and when the area's flood mapping was outlined, homeowners may qualify for reduced rates.
- Enhanced benefits are embedded in the legislation for policyholders who own residential buildings with multiple dwellings. Those that contain five or more units will see maximum building coverage double to $500,000.
No matter how complex the flood insurance landscape, it's critical to stay informed. Excess flood coverage means reimbursement for all covered losses without the obligation of repayment. Talk to your HUB broker today to assess your flood risk level. Don't be one of the 30 percent who thought they could go without, only to learn in the hardest way possible that low flood risk isn't equal to no flood risk.
For more information, check out our Flood Infographic.