NerdWallet: Most homeowners outside of high-risk zones don’t buy flood insurance, but that could be an expensive mistake

by | Apr 4, 2023 | Stock Market

This article is reprinted by permission from NerdWallet.  Between atmospheric rivers in California, Hurricane Ian in Florida, flash floods in Kentucky and monsoons in Las Vegas, floods have caused billions of dollars in damage over the past year alone. 

You may not think flooding could ever affect your home. However, 90% of natural disasters in the U.S. involve floods, according to the Federal Emergency Management Agency. And if your home does flood, your homeowners insurance isn’t likely to help. Don’t miss: A retirement safe from climate change? Ask the tough questions about real estate and property insuranceDo you need flood insurance? Many people assume their homeowners insurance covers flood damage, but that generally isn’t true, says Michael DeLong, research and advocacy associate at Consumer Federation of America. Flooding is different from the water damage your homeowners policy usually covers, such as from a burst pipe. In the insurance industry, flooding is excess water from sources like overflowing rivers, surging tides or rainfall that can’t drain fast enough. Nearly every homeowners policy excludes this type of damage, so if you want coverage, you’ll need separate flood insurance. Many people who buy flood insurance do so because they have to. FEMA designates certain places as “special flood hazard areas,” where there’s at least a 1% chance of flooding in any given year. If you live in an SFHA and have a federally backed mortgage, your lender will require flood insurance. Most homeowners outside of FEMA’s high-risk zones don’t buy flood insurance — but that could be an expensive mistake. About 25% of flood insurance claims are from low- or moderate-risk areas, according to FEMA. A map boundary shouldn’t determine whether you buy flood insurance, Jeremy Edwards, press secretary at FEMA, said in an email. “Where it can rain, it can flood.” And don’t count on federal disaster assistance if you decide not to buy flood insurance. The maximum FEMA grant to help flood victims rebuild their homes is $41,000, but most payouts are significantly lower. Compare that to federal flood insurance, which pays up to $250,000 for the structure of your home.

A home is surrounded by flood water in Daytona Beach, Florida, after Hurricane Nicole cam …

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