By Angela Epley
According to National Geographic, the 2017 hurricane season was the most expensive in U.S. history: Harvey, Irma and Maria caused more than $200 billion of damage.
With social media connecting friends, families and strangers to firsthand footage of the extreme wind, rain and subsequent flooding, U.S. homeowners can no longer afford to overlook how important it is to properly safeguard homes and valuables against future threats like these.
Despite the fact that floods are the nation’s most common — and costly — natural disaster, flood damage is not covered under most homeowners insurance policies. Other perils that are likely to cause catastrophic damage, like fires, are typically covered, and some water damage from a burst pipe or something minor will often be included. But if you get water damage from a nearby river overflowing, or torrential rain that doesn’t let up for days, you may be out of luck.
Damage from floods tends to be so all-encompassing — with its ability to cause widespread destruction not just to a single room or even a single house, but to entire neighborhoods and even cities — that the risk is simply too much for a single insurance company to bear.
That’s why in the U.S. we have a National Flood Insurance Program. By aggregating this risk on a grand (national) scale, it becomes more cost-effective to spread that risk around a big number of enrollees, which keeps flood insurance coverage more affordable than if it were purchased through private offerings.
But the kicker is that you have to opt in to get separate flood insurance, in addition to any existing homeowners insurance. For some people, flood insurance is mandatory: If you have a federal mortgage in a high-risk flood area, Congress requires this coverage. Some specific mortgage lenders may require it, too. But for the most part, whether you live in a high-risk flood plain or not, this coverage is something you have to get on your own.
“Insurance is a promise to help you recover — a promise that you hope you’ll never have to use,” says CERTIFIED FINANCIAL PLANNER™ and USAA advice director Sean Scaturro. “That promise is especially important when it comes to your likely greatest asset — your home. Your home keeps you protected from the storms of life and provides a safe place for your family. You’ll likely need some financial help if you ever have to rebuild it. That’s the promise of homeowners and flood insurance — to help you recover quickly from something that could have been financially devastating for years to come.”
So, if you’re not required to get homeowners flood insurance, do you really need it?
This is a question many homeowners wrestle with year after year. Right after a “hyperactive” hurricane season, like we had in 2017, the topic is usually fresh in people’s minds. Talk to any Texan, and they’re likely to share a story of someone they know or heard about losing everything in the Harvey floods, or a vacation property destroyed by Irma’s terrifying winds in Florida. Many are still dealing with the aftermath of flood damage, from fortifying their homes to restoring treasured family photos, so it’s easier to see the need now.
The real danger comes when people think it’s a risk they can take, either because the memory of flood damage is more distant or because where they live isn’t characterized as a high-risk flood plain. Because floods can occur anywhere, and “low risk” still has the word “risk” in there, it’s important to understand there’s always a chance flooding can occur, just as it’s important to understand there’s always a chance a fire can break out at home.
Besides, our understanding of what’s higher or lower risk may be at fault. The Federal Emergency Management Agency is responsible for maintaining flood map information, which is meant to indicate where higher- or lower-risk areas are located in the U.S. FEMA is supposed to review the maps every five years — but maps from the ‘70s are still being relied upon by local governments, real estate developers, mortgage lenders and homeowners who might be gravely mistaken in assessing their property’s true risk for flood damage.
Consider this: Even FEMA admits that around a quarter of flood insurance claims through the National Flood Insurance Program come from areas with low to moderate flood risk. In other words, it can happen to anyone.
Which means everyone should consider adding flood insurance to protect their home, property, belongings and loved ones.
The most counterintuitive thing about insurance is that the best-case scenario means you pay for something (insurance coverage) you never get to use. In a perfect world where nothing goes wrong, you won’t ever have to file a claim — which might make the money spent on premiums feel like it was somehow wasted. But don’t let this mental trickery fool you from thinking homeowners flood insurance isn’t worth the expense: It can happen to anyone, and because flood insurance is something you have to purchase in addition to regular homeowners or some renters insurance, it’s worth getting.
“Insurance doesn’t just rebuild your home, it protects your financial ability to retire when you want, pay for college for children, grow for other financial goals of life,” Scaturro says. “Protection is the first part of a sound financial plan.”
At USAA, we’re proud to sell and service coverage under the National Flood Insurance Program so you can get professional help walking through your options and coverage amounts. If you’re not a homeowner, good news: USAA’s renters insurance does cover flood damage, which is rare among those policies.
Property and casualty insurance is provided by United Services Automobile Association and its affiliate property and casualty insurance companies and is available only to persons eligible for P&C group membership. Each company has sole financial responsibility for its own products.
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.
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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