Posted by: Jeff Rhodes | May 14, 2010

Do You Need Flood Insurance?

The agency that I work for is headquartered in the Nashville, Tennessee metro area.  In that area, issues related to flooding are definitely on the top of everyone’s mind.  Regardless of where you live, you should take a moment to consider the flood exclusion in your insurance policy.

Flood damage to your home is EXCLUDED in your homeowner’s insurance policy.  In most policies, the exclusion reads something to the effect of:

“Coverage does not apply to damage arising from flood, surface water, waves, tidal water, overflow of a body of water, spray from any of these, or rain, whether or not driven by wind.”

“Flood is seepage, migrations, or rising of water.”


Unmodified, your homeowner’s insurance policy will not cover damage if it is caused by any of these things. Why? –   Flood damage is economically uninsurable due to the catastrophic nature of flooding occurrences.  In areas classified as “high-risk” for flood (100-year flood zone), a property has a 26% chance of suffering major flood damage during a 30-year mortgage term.  Properties in coastal and low-lying areas are even more at risk.  Remember – 100 year flood zones are not swamps.  Many, many houses are built in these areas.

With such a high probability of loss, “for profit” insurers simply can not provide coverage at economically feasible (or allowable) rates.  Therefore, the federal government provides a taxpayer-subsidized backstop – the National Flood Insurance Program (NFIP). This is the only primary flood coverage available.  For homeowners with traditional mortgages, NFIP coverage is required by federal law if the mortgaged property is in a 100 year flood zone.

If the home is not in a high risk area, then the bank may or may not require that the coverage be carried.   Unfortunately, many property owners – and insurance agents – translate “not required” as “NOT NEEDED.”

Is flood coverage really not needed?  Well – it’s not needed in order to get a loan and it’s not needed in order to comply with federal mandate.  But, 25% of all NFIP claims come from moderate to low risk areas – areas where the coverage is “not needed.”  That doesn’t count the MANY more losses that are not insured in these areas, because the property owners didn’t purchase flood insurance.

Whether you live in a flood zone or not, you may be at risk from flood damage.  Take the time to visit with your insurance agent and understand the flood exclusion.  Ask them to give you a quote on adding this important coverage.  Understand the limits of what is offered and come away comfortable and confident that you are covered in the event of a loss to your property.  If at any point, you agent utters the phrase “you don’t need flood coverage,” pack up your stuff and go see someone else.

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