Last week a survey about flood insurance in the USA by bankrate.com underlined the fact that standard home owners insurance doesn’t cover flood damage.
It seems that the message is getting through. After events like Superstorm Sandy and Hurricane Irene, more and more Americans have probably taken a look at their insurance policies and read some of the small print. So in response to the question in the survey this month, only 18% were unaware that flood damage was not covered. Here’s the question and graph:
The survey also asked respondents whether they were aware of the “official” flood risk status of their home, as set out by Federal Emergency Management Agency (FEMA). Here the results aren’t so emphatic in sowing how much the American public understand about flood risks. 43% didn’t know the category their own home came under in the FEMA classification.
Here is the complete question and responses below:
If your home is designated to be in a high risk flood area by the FEMA flood maps, your mortgage lender may well require you to take out specific flood insurance. The average flood insurance costs are believed to be around $600 per year. However, these costs can be much higher is areas more at risk of flooding.
If reading this has just reminded you that you need to consider flood insurance for your own home, then you might find this tool Flood Smart useful here. If you are in the USA you can enter your address and postcode and the tool will bring up the flood risk assessment, plus an estimated annual premium and a list of local agents.
But remember that even if you do take out a separate flood insurance policy from the federal National Flood Insurance Program (NFIP) on top of your standard home owners insurance, that NFIP insurance will only cover building damage up to $250,000 and contents to $100,000. It is understood that in 2011, the average flood insurance claim was more than $28,000.
So, do these figures mean that we all have flood insurance now? Well, in a word, NO.
While the survey shows we understand we aren’t covered for flood damage, it seems that this information, along with all the recent floods, still hasn’t led USA home-owners to purchase flood insurance. In fact the figures may well be going in the wrong direction.
A poll from the Insurance Information Institute in 2012 discovered that the amount of households in the USA with flood insurance fell to 13% in 2012. In 2008 it was around 17%.Bankrate:
So, what with Sandy and Irene and plenty of other floods in between (in April 2013 this included most of the midwest and Texas), why aren’t more Americans taking out flood insurance? Well, 2 reasons in particular. Many people underestimate their risk – if it hasn’t flooded yet, why would it in the future? Then many some fall into the trap of false security, thinking the government will surely help them out should there ever be such a flood disaster.
According to Bankrate.com
J. Robert Hunter, director of insurance for the Consumer Federation of America, cites two main reasons why some at-risk homeowners choose to remain uninsured for flood.
“One, people really underestimate their risk — they don’t go check the flood maps,” he says. “And two, they think, ‘If my home is flooded way up here, it’s going to be a disaster, and the feds are going to hand out money.’ They misunderstand disaster relief. They don’t realize that it’s a low-interest loan that they have to pay back, and you may end up with two mortgages.”
But there is another obvious but less often mentioned reason why people aren’t getting flood insurance. It’s getting to be too expensive. The Biggert-Waters Flood Insurance Reform Act of last summer seems to have resulted in price hikes for non-mandatory flood insurance, with instances of price rises from $100s per year to $1000s.
Quoting from Bankrate.com again, Amy Bach, executive director of United Policyholders, a San Francisco-based nonprofit advocacy group for insurance consumers, says:
“We’re getting all these emails from people in Louisiana saying their flood coverage went from $350 to $8,000 a year,” she says. “If you have to carry flood (insurance) because you have a mortgage, your choice is to find a way to pay or sell your home.”
“I don’t blame people for not wanting to buy it. Up until last year’s amendments, our advice was to go out and buy it because it’s cheap, it’s a bargain. For many, it’s not a bargain any more,” Bach adds.