Flood insurance worth it if your property is in a low risk area?

Question

This pertains to Eastern North Carolina, I have a property that is NOT in a flood zone but I have considered getting flood insurance due to the severe weather here in the Summer months and heavy rain, however, the lowest insurance I can get will cover $20K property with about $33/month for the insurance, which will eat into my cash flow, I don't know if it's worth it or not. I also can't cancel the flood insurance unless if I sold the property (according to the quote I received) so if I'm going to go with this, I need to be 100% sure. What are your thoughts on flood insurance? Is it worth it for someone who is in a low flood zone area?

Justin S. · Answer

You couldn't be more correct. I've seen hundreds of agents if not thousands who don't know a thing about the product they sell. In the end it's the same product but not every company treats it the same way on the adjusting side either

On the other points flood insurance is cheap if you're not in a SFHA and worth adding for a lot of people. A basement, even with all it's limitations, could still be a few thousand dollar loss on a very minor flood to tens of thousands on a more severe flood now if you think of a tiny bit of water in a slab or onto a first floor and you've got a huge mess

Robert Murphy · Answer

@Peter Kim to insure or not to insure that is a question. It seems that our relationships with the purchase of insurance are a very personal decision. Why purchase a product you never want to use, makes no sense right???.... well if you are losing sleep or have had to make a insurance claim you are likely very happy it was there, think (auto accident, GOD forbid a Homeowner claim (fire, robbery). During a 30-year mortgage period, you are 27 times more likely to experience a flood than having a fire. (per FEMA).

@Mike Wood Sorry you have had flood losses in the past I don't ever wish that upon anyone however it is the #1 natural disaster we Americans face that is why our government offers insurance coverage through FEMA or NFIP. There are other options through the private market that John so wisely pointed out. My experience is most insurance agents are generalist and don't specialize in flood insurance and some won't write it (this is where I see someone get a quote of $5K)  there are a few agents that specialize only in flood insurance if you are interested I can refer you to some =)

@Adam Schneider@Peter Kim it is solid advice to always shop any option when looking at any type of insurance and make your agent work to explain why the price is what it is, not all coverages are created equal and unfortunately, you wouldn't really know what your coverage is until you have to make a claim, a solid agent is like a Doctor in the advice and counsel you will get.

@John Mocker - sounds like he is a SOLID AGENT. I consider myself a FLOOD NERD, however, I have been operating under the same assumption as you that once a policy is in place it can not be canceled however I do not specialize in the PRP (Prefered Rate Policies) Government policies that are for areas that are considered low risk (X-zone as an example). So thank you John and Mike I will be doing research to make sure I am keeping my nerd badge. =)

Mike Wood · Answer

@Peter Kim  In my mind flood insurance is cheap, but I have experienced a flood, so I see things differently.  Also, if your going to get it, don't waste time with super low coverage, as the costs are not much more for higher limits.  As for your quote stating that you can not cancel it, that has never been my experience, unless its in a flood zone and flood insurance is required by your mortgage company.

In Texas and Louisiana, many homes were flooded in the last couple of years that were not in flood zones.   Super storm Sandy caused wide spread flooding in areas that are not in a flood zone.

So, yes, I think flood insurance is worth it.  I have it on all my properties, flood insurance or not.  But I invest in an area where we have hurricanes.

Fred Heller · Answer

@Peter Kim     Those numbers don't sound right to me. The flood insurance for my personal residence (not in a flood zone) is right around $400 a year. It covers the building up to $140,000. I can't remember the coverage for personal property, but I think it's $7500. I could have paid a higher rate for more coverage, but I feel those limits would adequately cover me in the event of a flood.I always recommend buying flood insurance because any home can flood given the right circumstances. Let's say the city water main breaks under the street in front of your house and the water enters your home. Homeowners policies typically do not cover water damage that comes in from the outside.In your case, the coverage seems so flimsy that it's probably not worth the expense. But I think you should check around for a better quote. Your quote doesn't sound like a typical FEMA flood insurance quote to me.

Lynn McGeein · Answer

I do have a flood policy on my primary although not in a risk zone, as it's actually less expensive for the maximum coverage on my primary than it is for about 1/3 of the coverage for my rental property nearby, also not in a flood zone, because of the expensive $250 annual surcharge on investment property.  Very annoying.  So I don't have it for my rentals that are not in a flood zone.  Making it fair across the board, where you pay based on your flood risk, makes sense.  What doesn't make sense is forcing investors to pay $250 more per year than their next-door neighbor just because one has a tenant and one doesn't.  The $250 fee doubles the cost of annual flood insurance for my investment property.   I won't even look at property in a flood zone any more unless it's cheap enough and worth it to pay cash -- no mortgage, so no required insurance.  And I won't pay $250 extra per policy per year to subsidize my neighbor's primary residence unless my lender forces me to.   I'd rather be covered, but not at that cost.

Robert Murphy · Answer

@ Justin S you are correct and the "cheap" is relevant. NFIP or government policy only covers 14 items in a basement there are a few private flood policies that cover basements fully however not every property will qualify for these policies and everyone wants flood insurance to be "cheap".

Where is the water going to go? Right, the basement of course and hopefully that is it. (It so sad to see the Houston homes that are half or totally covered with flood waters).

Basements in those that have the money to build it out seem to be a "play ground" for most people (think movie theaters, pool tables, Bar's, Football watching room, work out rooms, guest rooms, Kids play areas). And there is a lot of money poured into the build out. Most are upset and rightly so when they discover that the policy didn't cover the expensive things the homeowner has put in the basement. I implore you as well as my self to really consider what you are putting in this area and that you might risk "taking it on the chin" should you have a loss and not have the $10K pool table insured. I am very hopeful that the market will balance out in a few years and we will have policies that return the homeowner to WHOLE (term used in insurance that gets you back to where you were prior to loss; or at least as close as we can). But we are few years out.

I work exclusively only in Flood insurance and most homeowners tell me that they would not have the coverage if they were not being forced by their lender, they to their core believe they are never, never going to flood. FEMA Statistics over 50 years study have shown that a property is 27% more likely to have a flood loss than a fire.  (link for source). If you have a property in a high risk (SFHA) the probability increases. If you want more information about this reach out and I can help you understand the true risk of your property. This is also a good link for looking up whether or not if a property is in the high risk flood zone that being said this is a government site and well,... may not be true all the time.  (Link to look up your property) this is by no means the official document you can use to dispute the listing that would be done through running a flood zone determination (FZD) that your lender will always run or if you know a guy they can run it for you too. These do cost about $4 a search so don't abuse the guy =)

John Mocker · Answer

Peter,

If you are not in a zone that requires flood for the Mortgage, you can cancel the policy at any time but you will not get a refund of the unused portion.  Because of that, you would not want to cancel it.  Rather, if you decided you did not want it, you could decide to not to renew it when it expires.

There are several new companies that are not part of FEMA that are offering flood insurance.  Have your agent check into them.  They may offer better coverage or better pricing in your situation.

Adam Schneider · Answer

@Peter Kim I'd get a second opinion about the inability to cancel flood insurance. Was that a comment because you are taking out a mortgage, and the lender is requiring flood insurance?

Flood insurance worth it if your property is in a low risk area?

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