The best flood insurance coverages to choose are the ones that are going to be there for you if and when you have a loss. How much are you willing to pay for those coverages and if you don't want to pay for the flood insurance coverages are you aware of all the risks and are you prepared to be self-insured? Most people don't consider what would truly happen if they experienced a total flood loss and it is usually pretty devastating. Unfortunately, there are some very large gaps in the flood insurance market that leave many who think they are insured very underinsured.
The fact is: Risk doesn't go away because we don't think about it, or because we're naive. There are many financial factors that people don't realize when it comes to flood insurance coverage until after they experience a real flood loss.
What flood insurance coverages should I choose?
Many people who come to us are being forced to buy flood insurance because their mortgage company pulled a flood zone determination indicating that their property is in a medium to high risk flood zone. This often leaves people confused, upset and frustrated that they are being forced to buy something they don't really think they need. If people don't think they need something they are likely to try and save money by stripping their policy down to the absolute bare minimum and just getting the bare minimum. Especially, when a majority of the insurance market is only offering flood insurance through the NFIP or FEMA which can easily be double or triple the cost of lower-cost private flood alternatives. In order to determine the best coverage we need to consider how our coverage benefits will pay out like there is going to be a total loss. Hopefully, that's an extreme perspective and won't happen for you, but if we look at things from that perspective we might better understand what exposures we truly have and where we have a gap and are self-insured (financially exposed).
The most important flood insurance coverages, and what you need to know.
The obvious coverage is the building structure. Then you have contents, loss of use, other structures, and for businesses you have business income loss due to business interruption from flooding. This isn't an all encompassing list but a great starting point.
Building Coverage seems simple. You cover the structure of the building and we're good, right?.Well, be careful with that if your property will cost more to rebuild than your flood policy offers. How much would your property cost to rebuild? Most agents are selling NFIP flood policies that only offer up to $250K of coverage for homeowners and up to $500K for commercial buildings. Since this is all the NFIP offers, the mortgage companies will accept the coverage. We've seen homes of neighbors next door to our clients who have homes worth well over $250K who experience a full-loss. All the while our customers who chooses wisely after wise counsel insures their property to full replacement cost. In one scenario we had a client who received $700K and was able to immediately start rebuilding while their neighbor with our competitors NFIP policy is left shrugging their shoulder with only $250K to rebuild a similar home with no idea what to do. Be careful with the mentality of just making sure your mortgage company is happy with minimum coverage. Yes, you can initially save money by getting less coverage, but it could cost you a fortune later. Your regular home insurance coverage will likely have full-replacement cost if you need a reference. If you need help determining this, please reach out to us.
Contents Coverage is another wonky part of the NFIP flood insurance policy. Not only is the type of content coverage the worst kind you can get (ACV), Actual Cash Value, but if you have a basement, you will not have any coverage for contents in the basement. Where does water go? Yep, in the basement! The NFIP policy won't cover any of those contents. The type of contents coverage is "Actual Cash Value" which means they will only pay you a benefit for contents that are covered based on what the adjuster thinks the item is worth at the time of the loss. This can reduce your contents coverage payout significantly. We have private carriers with solutions that will pay out the "Replacement Cost Value" which means they will pay you a benefit for the item based on what it cost to replace. So, just because your NFIP policy states that you have $100K of contents coverage it doesn't mean they just pay that amount out. You have to have contents that tally up to $100K of market value.
Loss of Use is a very valuable coverage for those who are displaced from their home because of a flood loss. Many floods cause a home to be inhabitable and sometimes they will have to be completely rebuilt. If it's from a catastrophic flood, contractors can become massively booked out and it can take months. While this is happening if you don't have Loss of Use aka "Additional Living Expenses" coverage you will need to pay for the extra Hotel & Food expenses which add up very fast. It can be thousands of dollars in unexpected costs. Is your rainy day fund set aside for this? Or do you have in-laws or friends you can live with, or want to live with. For a little extra premium this coverage will spare you from this inconvenient financial exposure. This type of coverage is simply not available through the NFIP.
Other Structures coverage comes into play when you have a shed or an addition to your home or building that is not attached. The NFIP would require you to write a seperate policy for any additional structures where as the private flood market will offer solutions to add them to the coverage on your main policy. Many people don't realize there additional structures are not covered and when the storms rolls through they find out the hard way.
Loss of Income coverage will support the devastating financial blow a business experiences from their business being interrupted after a flood. The NFIP doesn't offer businesses this type of coverage which can be the difference in survival. If you can have access to a building to manufacture and sell products or services then your income is greatly impacted. Can your business survive months without business activity? More than 60% of businesses fail after a flood due to the fact that they don't have Loss of Income coverage related to flooding. Yet, how many businesses operate near areas where a flood would easily stop their business dead in tracks. No need to expose your business to this potential financial loss from flooding. Contact one of our commercial flood insurance specialists today and we can discuss how private flood insurance companies are able to protect you from this.
What if the flood insurance is too expensive with some of these additional coverages?
We understand how hard it can be to come up with money to pay insurance premiums. That being said, we still need to consider that the risk doesn't go away, and that ultimately, if we don't transfer the risk to the insurance company then we are self-insuring. If we can't afford the coverage then can we afford the loss? Would it be easier to figure out how to pay the premium so the risk can be transferred over to the insurance company, or to figure out how to come up with the money to pay for losses out of our own pocket after the loss happens? Losses can be catastrophic, insurance premiums are usually much more manageable. Either way, if your budget is so tight certain coverages aren't affordable we highly recommend that you speak with a wise flood insurance expert so they can help you tailor the best policy to meet your needs. In some cases we may be able to adjust a deductible so we can add a certain coverage that would otherwise not be affordable. We can help shed light on how to evaluate certain coverages and we can also dive in deeper to your properties specific flood risks with high-tech solutions.
“If your budget is so tight certain coverages aren't affordable we highly recommend that you speak with a wise flood insurance expert so they can help you tailor the best policy to meet your needs.”
Many people who aren't required to buy flood insurance end up buying a preferred risk policy through the NFIP which are fairly inexpensive, but also very limited in coverage. Price is only one factor. Get in touch with us today to learn more about what really matters.
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