Does your home have flood insurance protection?

Flood insurance is an optional benefit that can be purchased in addition to a standard home owners policy.  Many home owners see it as a low-risk gamble, and choose not to pay for the extra coverage.  Sadly, only 20% of homeowners in the Houston area opted to have flood damage insurance protection.  Thousands of Texan homeowners may find themselves financially devastated.

“There are three big misconceptions consumers have about flood insurance”, says Robert Hunter, a former Texas insurance commissioner who is now the director of insurance for the Consumer Federation of America.

“It won’t happen to me.”   Homeowners mistakenly think that because they’re on higher ground or not beside a river, they’re protected. Not so, says Hunter.

“I’ll just get money anyway.”   Many people avoid buying flood insurance because they assume that if a really big storm hits, federal disaster aid will cover their damage. Hunter says typical disaster grants are only around $5,000; anything more is a low-interest loan that the homeowner must pay back.

My homeowner’s insurance will cover it.”   Typical homeowner’s policies don’t cover flood damage at all, Hunter says.

What expenses can the federal disaster aid help with if you have flood damage?

FEMA helps with three things:

1) Rental Assistance

You can get up to two months of rental assistance if your home or apartment is inhabitable. You will not likely get anything from FEMA for property destroyed inside your home or apartment.

2) Some Home Repairs

FEMA pays for repairs based on how much of your primary living space was damaged. For example, if you have a three-story home and only the first floor flooded, but there were no bedrooms on that level, you will not likely receive any money from FEMA for repairs. If floodwaters damaged your water heater or furnace on the first floor, you should receive some assistance to replace that equipment deemed necessary.

3) Some Personal Property

FEMA pays to replace things like eyeglasses and dentures, but not clothing. It may able pay to replace or repair your household’s primary vehicle. If you have more than one vehicle in your household and all were damaged, FEMA will only pay to replace one. In some instances, if your auto insurance pays a certain amount to replace your vehicle, but it’s not enough, FEMA will pick up the remaining amount to replace your primary vehicle.

How much does flood insurance cost?

In 2016, the average NFIP flood policy cost about $700 a year and the average claim was more than $31,000, according to the NFIP. Currently, the program is nearly $25 million in debt after both Hurricane Katrina and Superstorm Sandy.

Currently, the insurance program is borrowing from the U.S. Treasury to cover its costs, which means that ultimately, taxpayers could be on the hook. Congress has tried to reform the program. It passed a bill in 2012 that would have raised premiums, but after an outcry from many of the 5 million policyholders, Congress changed the program again in 2014 to cap the increases policyholders would have to pay.

After Harvey, flood insurance needs reform.

“CONGRESS MUST be generous in helping to repair the damage, to lives and to property, from Hurricane Harvey. The full extent of the destruction may not be known for a long time but is evidently catastrophic, just as the damage wrought by Katrina and Sandy was. Even as they demonstrate that they have a heart, lawmakers must also show that they have some brains. Specifically, the United States is long overdue for smart reforms to one of the major government institutions designed to help people cope with the risk of natural disaster: the National Flood Insurance Program (NFIP), which has underwritten a total of 5 million policies providing homeowners and some businesses $1.2 trillion in coverage.”

Rep. Sean Duffy says that insurance reform can still happen amid Harvey relief.

“Mr. Duffy has been working on reforming the national flood insurance program for months, having released a discussion draft of his proposal earlier this year. His goal, he said, is to make the program sustainable. Currently, the program is nearly $25 million in debt after both Hurricane Katrina and Superstorm Sandy.

“The reforms we are talking about are common-sense, gentle reforms,” he said. “You can’t shock people and have a premium one day and the next day the premium doubles. You have to put it on a gentle escalator where people start paying rates that are consistent with the risks.”

Part of Mr. Duffy’s bill would put more of the cost on homeowners. He said if people continue to build close to the water, they need to pay relative to the risk, but there’s “a compassionate way” to increase the rates.”

Michael Granberry, whose home filled with about two feet of murky water, may be one of the lucky ones.

“Every year, I debate whether I want to pay for it or not,” said Granberry, who said that he didn’t purchase a $500 per year policy until 2011 despite his trepidation. “But then I thought to get peace-of-mind I better get that flood insurance. We do it every year now, but sometimes I thought it was wasting money. This time it paid off.”


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