Flood Insurance 101: Do You Actually Need It?

Last month, the country and much of the world watched as Hurricane Florence battered the Carolinas, dumping several feet of water on the area and flooding homes and businesses. Recovery efforts are ongoing, and likely will be ongoing for quite some time.

However, to add even more insult to injury to home and business owners affected by the flooding, there’s a very good chance that their insurance policy doesn’t cover the damage. Hurricane Florence has once again brought the subject of flood insurance back into the spotlight, something that we need to take a closer look at.

The True Cost of Flooding
It’s estimated that only about 12 percent of all Americans have flood insurance, which is a considerably low number when you consider that floods are the most common and costly natural disaster. In fact, it’s estimated that only an inch of water that enters the home has the potential to rack up more than $20,000 in property damage and restoration costs.

The big problem is that a typical homeowner’s insurance policy likely doesn’t cover flooding. While it’s true that many will cover water damage caused from a leak or issue within the home (i.e., appliance breakdown), homeowners will need a separate insurance policy to cover flooding. While this flood insurance can be purchased from a private insurer, it’s most often purchased via the National Flood Insurance Program.

Think of it this way: flooding and earthquake damage are said to be the two most expensive natural disasters. Neither are covered by conventional homeowner’s insurance plans.

Do You Need Flood Insurance?
Simply put, flood insurance is ideal for people who live in an area that has a high risk of flooding. Certainly, this would include coastal cities, but it could also be beneficial for inland cities, especially those around creeks, rivers and lakes with the potential to rise quickly under heavy rain. However, you don’t have to live in a flood plain or coastal area to qualify to purchase flood insurance.

How much does flood insurance cost? It all depends on where you live and what the risk of flooding is in the area you reside. However, on average, homeowners spend about $700 per year on plans purchased via the National Flood Insurance Program. Flood insurance typically caps out at $250,000 to cover your home and $100,000 for personal possessions, so you still may have to pay out of pocket for some costs depending on all that is damaged. What’s more is that you need to plan ahead when it comes to flood insurance, as it won’t kick in until 30 days following purchase. Finally, flood insurance usually doesn’t cover temporary relocation living expenses, should a homeowner have to live in a hotel or rental unit for a period of time until their home is restored.

There’s obviously a lot of factors to weigh when it comes to making the decision to acquire flood insurance, especially in the case of natural disasters when aid from FEMA can help offset some of the repair costs. Keep in mind, however, that the average FEMA payout to homeowners following Hurricane Sandy was about $8,000 and Hurricane Katrina about $7,100. That’s likely not nearly enough to cover all of the damage those two storms inflicted on individual homes.

Severe Weather Looks to be a Constant
Last year, it was Hurricane Harvey. This year, it was Hurricane Florence. These types of “every 100 year storms” are now becoming more of the norm – and it’s a trend that appears likely to continue.

Noting this, now is as good of a time as ever to seriously look into flood insurance and whether or not your risk potential would justify the added cost of having it. If you’d like more information on your home’s flood potential, we’d suggest you check out FloodSmart.gov. This site allows you to assess your home’s flood risk, see estimates for flood insurance plans and gather more information to help you make an educated decision on whether or not such an insurance program makes sense for you.


Ethan Warrick
Wealth Authority