Zone Defense — A Flood Insurance Game Plan
Homes and businesses located in high-risk zones have a one in four likelihood of flooding during a 30-year mortgage period. Such properties are nine times likelier to be damaged by flood than by fire. Even homes and businesses in low- to moderate-risk areas are statistically in danger; 20 to 30 percent of all flood claims come from these zones. Furthermore, floods account for 90 percent of all federally “declared natural disasters.”
According to Federal Emergency Management Agency (FEMA) records citing 94 “significant flood events” between February 1978 and March 2009, 24 occurred in the last ten years, and only two years (1987 and 1990) were without federally declared flood disasters. With unprecedented snowfalls occurring across the United States in the winter of 2009-2010, the probability of spring flooding rises with every inch of snow. (Each cubic foot of snow contains gallons of water that frozen ground cannot absorb.)
Safeguarding homes and businesses from the devastating force of flooding begins with good “zone defense.” Numerous misconceptions about flood insurance — and its availability — put properties needlessly at risk. This issue of The Leader addresses some of the more prevalent misconceptions and provides answers on availability.
Misconceptions
Misconception # 1
The most dangerous misconception about flood insurance coverage is the assumption that it is included in homeowners or commercial property insurance policies. It is not. Flood damage is only covered by flood insurance.
Misconception # 2
Those properties most at risk because of flood-prone location are sometimes assumed to be “uninsurable” by their owners or renters. They are not. If a community participates in the National Flood Insurance Program (NFIP), property owners, renters and businesses — with very few exceptions* — have access to flood insurance regardless of location. To learn if a community is a NFIP participant, visit www.floodsmart.gov.
* National Flood Insurance is not available to some Coastal Barrier System areas, Otherwise Protected Areas, and buildings primarily below ground or entirely over water.
Misconception # 3
Properties in low- to moderate-risk areas are often assumed to be out of harm’s way. They are not. As stated earlier, 20 to 30 percent of flood claims come from these areas. In addition to weather-related causes and proximity to bodies of water, flooding can also result from broken water mains, inadequate drainage systems, construction development, failed levees, and other causes.
Misconception # 4
Some owners and renters assume disaster assistance will bail them out if flooding occurs. It may not. To be eligible for disaster assistance, a community must be declared a “federal disaster area.” Such declarations for relief are made for fewer than half of all floods in the nation. In addition, disaster loans must be repaid with interest. Flood insurance pays even if the president of the United States does not declare a disaster.
Availability
Misconceptions create undue risk. So, too, does lack of information about the availability of flood insurance. For example, owners, renters and businesses in NFIP communities have access to the following maximum coverage amounts.
Home and Condo Owners: $250,000 building and $100,000 contents coverage
Renters: $100,000 contents coverage
Businesses: $500,000 building and $500,000 contents coverage
Note: Contents coverage is not automatically included with building coverage. Buyers should be sure to ask.
Properties in low- or moderate-risk zones may qualify for the lowest rate available through NFIP: a Preferred Risk Policy. With this coverage, premiums are surprisingly affordable. Starting at $119 per year, homeowners can purchase flood protection for their home and its contents. For as little as $550 per year, business owners can insure their buildings and contents. Annual business “Contents Only” coverage starts at $145. Residential renters can cover contents for as little as $39 per year.
Payment for a full year is required at the time of purchase and may be charged to a major credit card or paid by check. Buyers should note that National Flood Insurance Program policies cannot be purchased directly from the federal government. However, rates are set and do not differ from agent to agent or company to company.
Flood insurance rates do, however, depend on factors, such as:
- Building Occupancy
- Construction Date
- Number of Floors
- Location of Contents
- Lowest Floor Elevation
- Deductibles (which vary and apply separately to building and contents)
Homes and buildings in high-risk zones with mortgages from federally regulated lenders are required to have flood insurance. The two top risk zones, Zone V and Zone A, have subcategories and are grouped as “Special Flood Hazard Areas.”
Properties in Zone V are at highest risk. Because they are usually located near the ocean, they are vulnerable to hurricane-driven storm surges. Annual flood insurance premiums in Zone V average $1,000. Coverage is strongly recommended, if not mandatory.
Properties in Zone A, the second highest risk, are usually located near an inland body of water (river, stream or lake). Their premiums average around $500 a year. Flood insurance is strongly recommended, if not mandatory.
Regardless of zone, flood insurance is cheap compared to the damage even a few inches of water — and the subsequent mold — can create. Repair, removal, and replacement can cost thousands of dollars. FEMA reports the average flood claim (paid loss) for the 2009 torrential rain in Texas (which was declared a disaster) was $37,035. The average paid loss for flood damage from Hurricane Katrina was $96,378. Without a federal declaration or without flood insurance, a home- or business-owner can experience a flood of expenses amounting to a personal financial disaster.
More information about flood insurance is available through FEMA and local independent insurance agents, including Holmes Murphy. Start the conversation with the following questions.
- What is my property’s flood zone?
- Is my community an NFIP participant?
- Do I qualify for a low-cost Preferred Risk Policy?
Because there is usually a 30-day waiting period from the date of flood insurance purchase until the policy becomes effective, contact Holmes Murphy today.
This newsletter is from a risk management standpoint and does not necessarily reflect laws applying in specific states. Readers are advised to seek legal counsel or other appropriate expert advice before taking any action based on the information contained in this newsletter.