Flood Insurance - Myths and Facts
It is easy to say “I do not need flood insurance” because my house is not in a flood zone or that you have been told that I (homeowner) cannot get flood insurance because of the location of my home. These statements validate what many homeowner’s think in regards to flood insurance coverage on their homes/property.
Initially, flood insurance may not be on every property owner’s mind, but the reality is that it is more important to have coverage than most homeowners think.
Many homeowners do not think that flooding will have any affect to their property – until it’s too late.
Sadly there is also many homeowners who are not aware of what their homeowner’s insurance does or does not cover. In most “standard” Homeowner policies, flooding coverage is not included in their policy?
The following are some of the major “myths and facts” about flood insurance….
Myth #01: All homeowners’ insurance policies cover flood damage.
FACT is: More than 80% of American homeowners do not have flood insurance. Yet many erroneously believe that their homeowners’ policy will cover them in the event of a flood.
Myth #02: Only some homes are in flood zones.
FACT is: Everyone lives in a flood zone. The difference is that some flood zones carry a higher risk for flooding than others.
The Federal Emergency Management Agency (FEMA) studies flood risk throughout the country and maps them using Geographic Information Systems data (GIS). These maps are officially known as Flood Insurance Rate Maps (FIRMs) and are a great tool for insurance companies who utilize them to set homeowner flood coverage rates.
As you know, not everyone lives in a high-risk flood zone but it is important to know that mortgage companies will typically require those who do - to carry flood insurance at least thoughout the entire length of the loan.
Myth #03: Flood insurance is only necessary in high-risk areas.
FACT is: Not really but anyone can obtain flood insurance, this regardless of a home’s level of risk. Although some locations are at higher risk for a flood than others, this does not mean that lower-risk areas cannot experience a flood catastrophe. It is estimated that about 25% of all flood insurance claims are for homes that are not located in flood plain areas nor were they mapped-out to being located in a flood zone.
Homeowners can purchase flood insurance directly through the National Flood Insurance Program (NFIP) or via their insurer plus private insurance companies also offer coverage. NFIP flood insurance is backed by the Federal government.
Myth #04: You can’t buy flood insurance if you are located in a high-flood-risk area.
FACT is: You can buy National Flood Insurance no matter where you live if your community participates in the NFIP. The Program was created to provide flood insurance to people who live in areas with the greatest risk of flooding, these said areas are called Special Flood Hazard Areas (SFHA). In fact, under the National Flood Insurance Act, lenders must require borrowers whose property is located within an SFHA to purchase flood insurance as a condition of receiving a Federal/government regulated mortgage loan.
There is somewhat of an exemption for Conventional loans on properties located in coastal areas. If your loan is not "Conventional", lenders will notify borrowers that their property is located in an SFHA and that National Flood Insurance is a requirement in regards to procuring a mortgage loan.
Myth #05: Flood insurance will cover replacements and repairs for everything.
FACT is: Know that everyone in a participating community of the National Flood Insurance Program (NFIP) can buy flood insurance. However, flood insurance policies through the NFIP only cover up to a set limit for structural damage as well as a set limit for belongings. The exact coverage varies among single-family homeowners, renters, and commercial property owners. Private insurance companies may have their own limits of what they will and/or will not cover.
One thing homeowners may not realize is that the NFIP policies do not cover objects outside of the home, such as landscaping, fences, decks, patios, septic systems, swimming pools, and hot tubs.
The NFIP will also not cover any moisture, mildew, or mold damage the property owner could have otherwise avoided. Supplemental homeowner insurance policies may cover such damage, this depending on the coverage the homeowner selects.
Myth #06: You can’t buy flood insurance immediately before or during a flood.
FACT is: You can purchase flood coverage at any time. However there is a 30-day waiting period after you’ve applied and paid the premium before the policy is effective – but there is the following exceptions to the “waiting period”...
(A) If the initial purchase of flood insurance is in connection with the making a home purchase or refinancing a mortgage loan, then there is no waiting period. The coverage becomes effective at the time of the loan, provided application and payment of premium is made at or prior to loan closing.
(B) If the initial purchase of flood insurance is made during the 13-month period following the effective date of a “revised flood map”, then there is a 1-day waiting period. Again, this 1-day wait period only applies where the Flood Insurance Rate Map (FIRM) is revised to show the structure to now be in an SFHA zone when it clearly had not been previously categorized as an SFHA zoned area.
Myth #07: To get a policy, you must live in a flood plain.
FACT is: Not true. If you live in a flood zoned area and you are buying a home, your mortgage company will likely require you to buy flood insurance. But you can purchase it even if you don’t live within a flood zone. Simply know that, “Almost anybody can get flood insurance who wants flood insurance”.
The cost of a policy through the federal flood insurance program (NFIP) is based on their standardized rates plus other factors such as the home’s value and whether or not it’s in a flood plain/zone.
Myth #08: Wind-driven rain is considered flooding.
FACT is: No, it is not. Rain entering through wind damaged windows, doors, a hole in a wall or the roof, thus resulting in standing water or puddles is considered “windstorm damage” - not flood damage.
Although the Standard Flood Insurance Policy (SFIP) specifically excludes wind and hail damage, most homeowner policies do indeed provide such coverage.
Define Special Flood Hazard Areas (SFHAs)
A special flood hazard area is defined as an area having a certain “higher to a lower” chance of being inundated by flood waters in any given year.
There are two broad classifications of Special Flood Hazard Areas (SFHA): (1) “A” zones, and (2) “V” zones.
What Makes a “V” zone a “V” zone?
Differentiating between “A” zones and “V” zones is simple; “V” zones are generally located near areas subject to hazardous tidal flows (waves) caused by the ocean.
“A” zones are those areas simply subject to inundation by overflow of rivers, low-lying areas subject to ponding, etc. “A” can mean “altitude;” the water goes up and goes back down, but it lacks the damaging wave/tidal action of a “V” coastal zone.
The letter “V” can be used to signify “velocity” - the water is flowing and pounding with the increased hazard and damage of wave/ocean action.
When reviewing a coastal Flood Insurance Rate Map (FIRM), it is common to find “V” zones (coastal/ocean regions) transition into “A” zones (going inland). Although both zones are Special Flood Hazard Areas (SFHA), there is a difference in the supposed hazard and potential damage that leads to a difference in the zone rating criteria.
In closing: The typical home insurance policy does not cover earthquakes or floods. So a homeowner wanting coverage for either of those disasters will need to look into and purchase a separate and specific coverage against these 2-types of disasters.
In addition, when it comes to your insurance, not all water damage is the same. If there’s a storm and water comes in either through your roof, windows, doors or walls etc. that would be covered under your Homeowners policy - versus a flood situation where the riverbank overflows and the moment you look out of the front of your house you discover that you will need a raft or a small boat to get from your point A to point B and back… now that is a flood !
Oscar Castillo : Broker Associate (San Diego, CA)
- Residential Brokerage