By Angela Epley
The internet has made the transmission of information faster a breeze — but that unfortunately also applies to rumors and hearsay.
When it’s a bit of gossip about your favorite movie star or a famous recipe, the results are pretty harmless. Some myths are more persistent and can cause a lot of damage.
After the historic 2017 hurricane season that resulted in widespread flooding in Texas and elsewhere, it’s critical that homeowners understand the difference between flood insurance facts and fiction.
FACT: Even if you have homeowners insurance, you aren’t automatically covered for flood damage.
If you’re a homeowner, your insurance policy covers a lot of stuff: damage to your house structure and personal property if something bad happens, like theft or a fire. But what too many homeowners don’t understand is that there is a lot of stuff not covered under a homeowners insurance policy. These are called “named exclusions,” in the parlance of insurance policy jargon, and in a multipage policy document, they’re rarely read in-depth by homeowners until it’s too late and something’s gone wrong.
“Flood insurance is usually excluded because it is subsidized or even solely handled by the state or federal insurance,” says CERTIFIED FINANCIAL PLANNER™ and USAA advice director Sean Scaturro.
The most important thing homeowners need to understand is that flood insurance must be purchased separately and in addition to regular homeowners insurance. (And if it’s been awhile since you’ve pored over your policy, take a peek and look for the exclusions: You might be surprised at what you find.)
“Most insurance companies offer a comprehensive homeowners policy, yet the most comprehensive policies will have some exclusions that limit coverage for certain things — like flood,” Scaturro says. “Take a look at your policy or contact your insurance company to make sure you are adequately protected.”
Too many homeowners mistakenly assume that because a FEMA map tells them they live in a low- to moderate-risk area, they don’t need flood insurance. The statistics tell a different story. Almost one out of every four claims comes from low- to moderate-risk areas, which underscores one important fact: These areas still carry some degree of risk.
To make matters even more confusing, the FEMA maps, which indicate low-, moderate-, and high-risk areas of the nation, aren’t always current, or the folks using that information – like local government, property developers and potential homeowners – might not be using the most recent maps.
“Flood insurance protects your ability to recover financially in the event of a flood,” Scaturro says. “Very few of us could repair or replace our home without assistance from our insurance. I recommend you protect what is likely your greatest asset — your home — from loss. Flood insurance protects both your ability to live with a roof over your head and other financial goals that would likely suffer, like retirement.”
FACT: Almost all flood insurance policies have a 30-day waiting period.
If you think you can get away with tracking the weather and nabbing flood insurance coverage right before disaster strikes, that’s not how it works. In accordance with FEMA’s National Flood Insurance Program, most coverage has a 30-day waiting period before taking effect, and coverage premiums must be paid in full.
“Many insurance companies will cease selling flood insurance policies in areas where a storm is imminent. So, if your local weatherman is already talking about a storm headed your way, it may already be too late,” Scaturro says. “Make your plans early to protect your home and loved ones.”
FACT: Flood policies don’t automatically renew. This means that you have to seek out and specifically sign up for flood insurance each and every year.
You basically have to take the steps to renew coverage and pay the policy's premium to ensure you’re squared away before disaster strikes.
This point of friction can often dissuade folks who have previously held the coverage from letting it lapse. After all, if you’ve been dutifully paying for flood insurance coverage and your region has been in a drought or without any floods in recent memory, it can be tempting to use those funds for other things.
That said, you should resist this temptation. The purpose of insurance is to cover catastrophic accidents that could wipe out a big chunk of your family’s wealth and protection. Simply put, you just shouldn’t accept the risk of the most common natural disaster in the U.S. if it can cause permanent damage to your dwelling and belongings, becoming a catalyst for financial devastation. FEMA notes that the damage from just one inch of water can cost over $20,000. Is that an amount of money you could comfortably part with if a flood happened tomorrow?
FACT: Flooding can be caused not only by storms, but also manmade structures (like dams) failing, snow melt and more.
Hurricane season is thusly named because it’s a time in the year during which predictable weather factors create conditions more likely to produce torrential rainfall, extreme wind speeds and the resultant damage those can cause. But flooding can occur when levees break, as they did in New Orleans during Hurricane Katrina, and even during the winter in places as cold as the Great Lakes where tidal flooding and ice jams can create floods, too.
FACT: It’s better to have it than be without when you need it.
Flood insurance is not underwritten by USAA or its affiliates. It is provided by USAA General Indemnity Company through an arrangement with the Federal Emergency Management Agency. The federal government has financial responsibility for underwriting losses.
The typical homeowners policy doesn't include flood coverage, and in some locations, you may also need to obtain a wind-only insurance policy. Flood insurance can be purchased separately through the National Flood Insurance Program. The maximum limits of coverage available on the federal flood policy for residences are $250,000 on the building and $100,000 on contents. If you need additional flood insurance coverage beyond these amounts, you can contact USAA Insurance Agency which works with other insurance companies that provide excess flood coverage.
Certified Financial Planner Board of Standards, Inc. owns the certification marks CFP® and CERTIFIED FINANCIAL PLANNER™ in the United States, which it awards to individuals who successfully complete the CFP Board’s initial and ongoing certification requirements.
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