Blog - Superstorm Sandy: Lesson on Flooding Risks

Andrew Gipner
Lead Financial Planner

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By now, we have all seen (either in person or via media) the catastrophic event known as Superstorm Sandy.  From the boroughs of New York City to the beaches of the Atlantic shore where beautiful homes and businesses once stood, the pictures leave a lasting image that is hard to even fully grasp.  I believe that it is safe to say that this storm not only left its place in history, but also presented huge burdens on those affected.

One of the items often discussed with the storm is the flood waters coming inside the houses of numerous individuals and families. To date, some homes still have flood waters inside which ultimately may lead to other problems such as mold. Without a doubt, this will cause a financial strain on those who experienced this calamity. However, the total burden will be more severe and the timeframe of rebuilding longer for those that did not have flood insurance.

The National Flood Insurance Program was introduced in 1968 when a number of insurance companies deemed flooding as an uninsurable peril. Like a private insurance company, the federal government collects premiums from those who desire the coverage as well as those who are required to have coverage that in-turn pays for the damages incurred.

Individuals who live in a high-risk area (also known as a Special Flood Hazard Area) or have a mortgages backed by the federal government (VA and FHA) are required to obtain coverage.  Normally, this is taken care of by the insurance company while an individual is implementing initial coverage. However, for those that are not required to have flood insurance, the notion to purchase coverage is sometimes not even considered.

So, what does this mean? Am I telling everyone to obtain coverage as a way to further mitigate an event that may or may not happen? Well, not exactly. I myself do not own this coverage, and plan on not purchasing it for my current home.  However, if you are like me and are not required to have coverage, I still encourage you to consider the following:

  • As stated before, homeowners and renters policies often do not cover damages caused by a flood.  This fact is often not discovered until it is too late. Even something as small as an inch of water may cause thousands of dollars’ worth of damage.
  • Flooding can happen anywhere. Be it excess rainfall, melted snow, or even a clogged neighborhood sewage drain, there is always a possibility that a home will give way to flooding. Because of this, everyone, by definition, is in a flood zone. As to what type of flood zone, that is determined by your local government/municipality. Remember, if you are in a high-risk area, you are required to have coverage.
  • There is a 1 in 4 chance that an individual/family will be exposed to flooding damage over a timeframe of 30 years (the average timeframe of a mortgage).1
  • In 2011, about 1/3 of all flood insurance claims came from areas that were considered low risk.1
  • Premiums are much lower for those who are in a low-risk flooding area.  If flooding does occur, the total cost of premiums overtime will likely be much lower than the cost of damage repairs.

Whether you choose to obtain coverage or continue to self-insure this risk is entirely up to you. However, if you do desire coverage, be sure to discuss everything over with your financial planner or insurance agent first to make certain that you are properly insured.  Like a homeowners policy, over- or under-insuring may lead you to overspend on premiums or worse, suffer from excess out of pocket expenses in the event of a catastrophe.

1, 2011


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