For Your Consideration

Let’s first get this out of the way: flood insurance suffers from what the insurance industry calls “adverse selection”, which means that for the most part *only* those people that need to buy flood insurance coverage (as required by their lender), in fact do. Some (closer to “most”) people assume that it’s already covered under their homeowners, renters or condo policies (it isn’t) or figure the risk of flood too remote to affect them. Accordingly, the law of large numbers cannot work properly. I’ve outlined 5 forgotten (or unknown) flood insurance concepts that everyone should know:

1. The primary supplier of coverage is the federal government.

It’s true- it’s called the NFIP, which stands for the National Flood Insurance Program. The government contracts with insurers to provide the coverage to you, but the costs (including claims paid) are funded by the U.S. taxpayer.

2. The definition of a flood zone: EVERYWHERE

There’s *nowhere* in the United States where a flood cannot occur. Just because your home is not in a designated flood “zone” should not give you any comfort. In fact about 30% of all flood losses occur OUTSIDE a designated flood hazard area.

3. Flood coverage includes losses from mudslides or mudflow.

If I had a dollar for everyone who told me, “I live on at the top of a hill (or on a hill) - I don’t need flood insurance”. Ask people who live in the hilly areas of California who’ve lost their homes to mudslides if they don’t need flood insurance. Remember, land subsidence (which is for the most part a fancy term for a mudslide) isn’t covered under a standard homeowners/renters/condo policy.

4. There is VERY-limited coverage for basements.

Contents of a basement is NOT covered, nor is any improvements such as finished walls, floors or ceilings. What *is* covered are things like: foundation elements, utility connections, heaters, A/C units, unfinished walls and clean-up. That big screen TV and stereo system you have in the basement is there at your own risk only!

5. Increased Cost of Construction is included (sub-limited).

This is a nice addon and automatically included for most regular flood policies. Basically, the government (through the insurer) will help you pay for building upgrades (post-loss) to reduce the likelihood or severity of a future loss. Amount of coverage available: $30,000. It’s a shame we don’t pay enough attention to prevention or mitigation pre-loss!

This entry was posted on Friday, April 18th, 2008 at 18:12 and is filed under Insurance. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.