OK, let’s get the obvious pun out of the way right off the bat. Flood insurance can be a dry subject. Granted, it may not be exciting, but if you are a homeowner in the town of Telluride or along the San Miguel River corridor, this article is directed at you.
In light of our recent rains and flooding along Cornet Creek, I thought it would be a good time to discuss the importance of flood insurance. The truth is most homeowners don’t give much thought to flood insurance until they see Noah’s Ark floating by the kitchen window. That’s the problem. Once the rains start, it’s already too late to think about it.
The most important piece of information I want you to take away from this article is that homeowner’s insurance does not cover damage caused by flooding. That’s correct. Your homeowner policy will pay nothing if your house or contents are damaged in a flood, as defined by the Federal Emergency Management Administration (FEMA). (The National Flood Insurance Program operates under the auspices of FEMA.)
First, let’s define flooding. Without quoting verbatim the entire written definition as supplied by FEMA, we are basically talking about damage caused by “surface water.” This can include, but is not limited to, the overflow of rivers and streams, or heavy rains.
If I asked you how many insurance claims involving fires we file in the United States every year versus flood claims, what would be your guess? Ten fire claims for every one flood claim? Twenty?
Actually, it’s a trick question. The correct answer is the opposite of what most people think. On average, there are 26 flood claims filed for every fire claim in the United States. That doesn’t even include flooding from hurricanes Katrina and Rita.
Locally, our agency has filed zero fire claims in 2007, but we filed three flood claims for homeowners in Telluride on July 24.
“Why won’t insurance companies cover floods?” you may ask. The answer is simple. Insurance companies are all about spreading risk over large areas. When you can have a whole neighborhood or town wiped out by a flood, the risk is not distributed over a large enough area for the insurance carriers to be able to absorb the loss.
Because the insurance companies will not assume the risk for flood losses, the federal government stepped in and, in 1968, created the National Flood Insurance Program (NFIP). The NFIP, through professional insurance agents, provides this important protection for homeowners who are in designated flood zones.
Since flooding causes more home property damage in the U.S. than fires, why then, do so many homeowners ignore this important coverage? Think about it. If your home is in a high-risk flood zone, you are 26 times more likely to suffer damage from a flood than from fire. Shouldn’t flood insurance be equivalent in importance to homeowner’s insurance when purchasing a home?
Again, the federal government thinks so. That is why the Reform Act of 1993 was passed by the U.S. Congress. This act outlines the requirements and responsibilities of lenders when it comes to loans on properties in certain flood zones.
The Town of Telluride is a participant in the National Flood Insurance Program. David “Sam” Samuelson, Telluride Building Official, is a FEMA Certified Floodplain Manager. FEMA, through the NFIP, has mapped the town and determined which flood zone designations to assign to each area. The “A” flood zone designation is generally assigned to the highest risk areas.
To give you an idea of how this affects homeowners in Telluride, much of the north side of town (above Colorado Avenue) is in some type of “A” flood zone. In addition, many areas on the south side of Colorado Avenue close to the San Miguel River corridor are in an “A” flood zone.
That is why lenders require borrowers to purchase flood insurance on homes and condominiums in much of Telluride. It is not a conspiracy to add to your closing costs when purchasing a home. The lenders are simply fulfilling their obligation under the Reform Act of 1993.
There are many misconceptions about what flood insurance covers and what it does not cover. The basic purpose of flood insurance is to repair or replace your home and contents in the event of a flood.
By federal mandate, the maximum amount of coverage afforded by the NFIP for a single-family home is $250,000. (For commercial properties, it is $500,000).
Obviously, in an area like Telluride, this limit is woefully inadequate to replace an entire dwelling. The best an owner here can hope for is that the flood damage is limited to the basement or lower floor. Hopefully, the $250,000 limit is adequate to repair this type of damage.
(Since Hurricane Katrina, Congress has been considering increasing these limits, but nothing has been finalized as of the writing of this article.)
There is an option available to cover the gap between what the NFIP provides and the true replacement value of your home. “Excess” flood coverage may be purchased to increase limits above the $250,000 provided by the NFIP. This excess coverage may be obtained from several companies through your insurance agent.
Keep in mind that this coverage is exactly as its name implies. It is “excess” over and above the limits provided by the NFIP. So, in reality, you will have two flood insurance carriers: the NFIP and the excess flood company.
Next, despite what many homeowners believe, flood insurance does not cover contents stored in your sub-grade (below ground) basement. That’s right. Your personal belongings, including family heirlooms, photos, antiques, etc., are not covered against flood damage if they are stored in the basement.
Some exceptions to this rule are washing machines, dryers and food freezers kept in the basement. Other items, necessary to the operation of your home, including utility connections, furnaces, sump pumps, and water heaters are also covered.
Additionally, if you use your basement as finished living space, you cannot expect items such as entertainment centers, televisions, exercise equipment, or other personal belongings to be replaced.
Also, finishes on walls, floors and ceilings in the basement are generally not covered.
For instance, the NFIP policy may repair damage to your foundation walls, but they will not replace the carpet in the basement. They may replace or repair partition walls in your finished basement, but that only includes the studs and drywall. It does not include re-finishing or re-painting of the drywall and ceilings.
In other words, if you have a finished, below-ground basement, don’t expect the NFIP to pick-up the entire tab for repairs or to cover any of your contents.
Lastly, don’t assume that only property owners in the town of Telluride need flood insurance. Houses along the San Miguel River should have flood insurance also.
Just because your house is not located right next to the river doesn’t mean you’re safe. Have you seen the aftermath of the recent mudslides between Keystone Hill and Sawpit? Even if you don’t live close to the river, you may want to consider the risk from water and mud flowing down those red cliffs behind your house.
A complete review of flood insurance policies and the coverage they provide would require much more space than I have available here. The purpose of this article is to hit some of the highlights and make homeowners aware of the possible need for flood insurance.
Property owners should discuss flood coverage with their professional insurance agent as part of a comprehensive insurance program. For more information about the NFIP program, please visit their website at www.floodsmart.gov.
The bottom line is, don’t wait ’til the water is up around your ankles to think about flood insurance.
Kevin Kell is a professional insurance agent and owner of Co-West Insurance of Telluride.