Thoughts on Flood Insurance

January 22, 2013 at 7:58 pm | Posted in Flood Insurance, Insurance | 1 Comment

Hurricane Sandy wreaked havoc on the East Coast of the United States on October 29, 2012 and her fury is still being felt today.  It seems daily we read stories like this one in Newsday, “Many Sandy Damaged Homes Lacked Flood Insurance”. Of course the first thought upon reading the article was a feeling of sadness for the victims of Sandy, but the second and third thoughts tangled with each other.

The second thought was from the view point of an insurance agent; NSA Insurance is after all an insurance agency.  So the following sentences from the Newsday article brought a nod of agreement.

                    “But many homeowners don’t buy it – even in coastal  

                      areas.  In some cases, they have paid off mortgages and

                     opt to drop the coverage.”

As agents we hear almost daily (or at least we used to) “I don’t need flood insurance, we never have flooding.” or “I paid off my mortgage and it’s not required anymore.”  We do our best to explain some basic facts about flood insurance:

  • Homeowner & business insurance does not cover damage caused by flooding.
  • Everyone lives in a flood zone.  Floods are not only caused by hurricanes like Sandy but also by storms, melting snow, water backup due to inadequate or overloaded drainage systems, as well as broken water mains.
  • Everyone can buy flood insurance on their homes & businesses no matter what your flood risk.
  • All flood insurance policies are offered through the National Flood Insurance Program, run by FEMA.  Your flood policy maybe be serviced by another insurance company like Fidelity National Flood, Travelers, etc. but they are all the same product underwritten by the National Flood Insurance Program.
  • Contents coverage is also available to homeowners, business owners and tenants.
  • Even if the President declares a state of emergency and you do not have a flood policy, you would only be eligible for an emergency loan.
  • Under normal circumstances there is a 30-day waiting period for a flood policy to take effect.

The third read through and thoughts were from the point of view of the non-insurance agent reader.  Wondering why insurance isn’t doing what they thought it would.  There are numerous reasons for confusion but here are a few.

  • Why isn’t my homeowner policy paying for damage sustained to my home?  During Hurricane Sandy, for instance the main reason for denials of claims was that the “cause of loss” (insurance terminology for what happened first to cause the damage) was flood.  The first blow Sandy gave us was to cause the tidal waters to climb higher than most places had ever experienced.  Therefore, because flooding happened first that was the “cause of loss”.

                         Homeowner and Business policies do NOT cover flood.

  • Why isn’t my flood policy covering all the damage?  There are a few reasons why this might be the case.
    • The maximum building coverage for a typical homeowner flood policy is $250,000 and $500,000 for a business property.  If your damages add up to more than the maximum coverage ($250,000 home/ $500,000 business) there is no coverage for the additional cost.
    • The maximum contents coverage for a typical homeowner flood policy is $100,000 and $500,000 for a business policy.  And again if the damage to your contents is more than the maximum contents coverage there will be no coverage for the additional cost.
    • Typically, when a flood occurs in a home or business the flood insurance will only pay up to the part of the wall that was damaged.  So if the flood reached 6 inches in your home or business, the sheetrock or wall covering will be cut right above the line of flooding and only the damaged bottom part of the wall will be replaced.
    • For the homeowner who had more damage than the flood insurance policy covered our experience has been that our clients have been grateful to have something rather than nothing.  $250,000 maximum building coverage plus $100,000 maximum contents coverage or $350,000 towards a hypothetical $400,000 flood claim is better than having to apply for a Federal Disaster loan with an interest rate between 4% and 8% for the difference.

Sandy, Katrina, Irene and Andrew were all storms that made headlines and changed the insurance industry forever.  There is no easy insurance answer for all the devastation and loss.  The best thing we can all do as insurance consumers is

  • Educate ourselves about the insurance contract by asking our insurance agent for explanations and examples and have
  • Insurance Coverage Reviews as often as possible to make sure your insurance keeps up with the changes in your life.

Please feel free to contact any NSA Insurance Group office at 631.722.3500 and we would be happy to answer your flood insurance or any insurance related question.

For additional information:

NSA Insurance Group FAQ page

SBA Disaster Loan Fact Sheet

NY Times “Reconsidering Flood Insurance” 11/8/12

Newsday “Many Sandy Damaged Homes Lacked Flood Insurance” 1/13/13 

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