Why Flood isn’t Included In Your Homeowners Policy
Once in a great while when I’m at a social event I end up talking about insurance. Not intentionally, of course, but as much as insurance can be a boring topic it’s also highly misunderstood; as I learned once again one night catching up with friends in Boston.
After work one night a few days ago I met with some old friends for a rare guys night out at a popular bar in Boston. It was a sports lovers cornucopia of Hockey playoffs, Red Sox, U.S. Soccer World Cup qualifying match and even golf. With a beautiful plate of chili fries and a Sierra Nevada in front of me I was looking forward to a fun night with some friends. While absorbing seven screens of sports we chatted about numerous issues, blindly scooping up chili soaked fries between talking points. Just when I started to melt into all the glorious, luminous of sports my friend dropped an insurance question on my lap. “Hey, I’ve been wanting to ask you. I had flood damage in my basement a couple years back and filed a claim with my agent and the insurance company denied it. They said it was classified as flood damage and said flood damage isn’t covered on my homeowners. What gives- is this true?” With Big Papi striking out yet again in the background I awaited the obvious follow up question. “Is it true that flood damage isn’t covered under most insurance policies? That’s what my agent said.” “Well,” I told him, “there’s good reason why flood damage is not included in your home owners insurance policy.”
Now, don’t get me wrong I love providing advice and information about insurance to anyone who needs it and is willing to talk about such an exciting subject. But this question, the flood insurance question, has the possibility of being an all nighter. It’s a loaded question and, as an industry, a hot topic with the recent huge increase in insurance rates in such coastal states like Florida and Texas.
Your home has a 26% chance of being damaged by a flood during the course of a 30-year mortgage, compared to a 9% chance of fire.
So Why Is Flood Excluded From My Home Owners Insurance Policy?
So with Sierra Nevada in hand and a fresh scoop of chili fries I began to answer my friends question. To put it simply, as I explained to my friend, not everyone who owns a home needs insurance protection from a flood. Fire, lightning, wind damage are all perils every home is at risk no matter where in the country. However, not everyone lives near a body of water that poses the risk of flood damage. Granted, heavy rain fall can cause water tables to rise from below and cause flood damage to any home as it did in my friends case, but the variety of risk and threshold is not consistent throughout the country to justify flood coverage on a standard home owners insurance policy. So rather than have everyone, no matter your flood risk level, pay more for home insurance to cover the risk of flood the insurance industry excludes it on a standard home owners insurance policy. Those who are at risk have the opportunity to purchase separate flood coverage and those who are not at risk don’t pay in higher home owners insurance premiums to cover those who are.
Florida and Other Coastal States Push For Standard Flood Coverage
There’s been a lot of talk recently of getting flood coverage included on the standard home insurance policy. High risk states like Florida and Texas have been pushing to have the cost of flood damage shared across all homeowners via the standard home insurance policy. Some have listened, but implementing such a change and trying to estimate risk cost where risk does not exist is something the insurance industry is most certainly willing to avoid. Not to mention, once the industry allows a regional risk to be allowed on a standard policy you can be assured Congress, eager to please their constituents, will be jumping on board to try and bloat policy coverage’s even more. For the most part the push to standardize flood coverage has cooled, at least until the next storm ravages Florida.
Although my friend now understood why flood is not covered under the home insurance policy the industry still does a poor job in explaining its coverage policies and could serve the public better and itself for that matter if it took extra steps to educate the public. As for me, I’m always happy to provide insight one consumer at a time.