Flood Insurance: The Risk of Not Being Insured
Nobody ever thinks it's going to be their house. You always hope for the best and prepare for the worst, which makes flood insurance a non-question. It's imperative to have it to protect your property.
Flooding is the most common and costly natural disaster in the United States, affecting every region and state. In fact, one in four insurance claims come from outside high-risk flood areas.
A property does not have to be near water to flood. Even if flood insurance is not mandated for your client’s property, they are still at risk. Encourage your clients to purchase flood insurance to protect their properties from flood damage and the economic devastation it can bring.
In 2017, nearly 57% of Hurricane Harvey flood insurance claims came from outside the high-risk flood area.
Federal disaster assistance is not the only answer
Federal disaster assistance is available only if the President declares a disaster. With flood insurance, your client is covered even if a disaster is not declared.
Disaster assistance typically comes in two forms:
- A U.S. Small Business Administration loan, which must be paid back with interest, or
- A FEMA disaster grant, which is about $5,000 on average per household.
Both programs have strict eligibility requirements based on individual need and many disaster survivors may not qualify.
By comparison, the average flood insurance claim payment in 2017 was more than $90,000. Your client will never have to repay money received from a verified claim on their National Flood Insurance Program (NFIP) flood insurance policy.
No one wants to have to explain to a flood survivor that their loss is not covered by homeowners insurance, or that assistance is limited. The NFIP is working to double the number of properties protected from flood loss, and you can help.
SFHA vs. NSFHA: Understanding flood risk
It is important to let your client know that low-risk doesn’t mean no risk, and that most homeowners insurance policies typically do not cover flood damage. That means regardless of where your clients live, flood insurance is a smart investment to protect the life they’ve built.
Known as high-risk flood areas, these are the areas with the highest risk for floods. These zones begin with the letters A or V on FEMA flood maps.
If a property is in an SFHA or designated high-risk flood area, then federally regulated or insured lenders must require the buyer to purchase flood insurance as a condition of their mortgage loan.
Known as moderate- to low-risk flood areas, these areas are designated with the letters B, C, and X on FEMA flood maps.
In these areas, the risk of being flooded is reduced, but not completely removed. One in four insurance claims come from outside high-risk flood areas.
Property owners in moderate- to low-risk as (NSFHAs) are eligible for lower-cost Preferred Risk Policies (PRPs). Premiums start at less than $325 a year.
One other NSFHA flood zone is Zone D. These are areas of undetermined flood hazards where there is likely additional flood risk, but the extent is unknown. These can be found in areas where no study or analysis were performed or on a recently updated map where there is a levee that was not accredited.
Help your client understand their risk
To learn more about their flood risk, your clients can:
- review their community flood map on FEMA’s Map Service Center, or
- check with their local community planning or building permit department.
Also, lenders are required to notify borrowers if they must purchase flood insurance as a condition of a mortgage loan.
Liability for non-disclosure
As an insurance agent, you have a responsibility to inform your client about all of their risks and what coverage is available, including the risk of flooding. Otherwise, your client may hold you accountable if they didn’t have coverage and were never informed.
The top two Errors and Omissions (E&O) pitfalls are not offering coverage and not offering the right amount of coverage. As a well-educated flood agent, you can protect yourself from possible E&O-related lawsuits by staying up-to-date with the latest program changes and attending flood insurance training.
Visit NFIP Services to download the latest insurance manual, sign-up to receive flood insurance bulletins, and to register to take flood insurance workshops and webinars.
You can better help your client understand flood risk by knowing your community’s flood map and seasonal flood risk factors and staying up-to-date with the NFIP.