5 Things You Should Know About How Much Flood Insurance is Enough
The National Flood Insurance Program (NFIP) offered through FEMA will at most cover up to $250,000 for flood damage to a residential structure and up to $100,000 for the contents. Is that enough for your clients? As with most things, the answer is not one-size-fits-all. When talking to your clients about their flood insurance options, here are five things to consider.
#1 – It costs more to rebuild today than it did a year ago
According to the National Association of Home Builders, construction costs in 2021 were up 23% over the previous year. The cost of lumber has come down from its May 2021 peak when it was three times more expensive than before the pandemic, but prices are still running high. As of December 1, lumber prices were 124% higher than in August 2021. Analysts attribute this spike to wildfires and floods in British Columbia and the northwest United States disrupting an already fragile supply chain.
#2 – Construction costs will continue to rise in 2022
As lumber prices have settled, the costs of other construction related materials – such as concrete, bricks and cement – are rising and forecasted to grow into the summer of 2022. COVID continues to impact not just the worldwide supply chain, but labor costs as well, which are expected to run high in 2022 with a growing lack of skilled workers. This was already a major challenge across all trades, with Gen Z putting construction second to last on the list of industries in which they want to work. Add to that the impact of the Great Resignation, and not only will it be expensive to get someone to repair a flood-damaged home, but good luck finding someone to do it.
#3 – Floods can cause more damage than you might think
Recovering from a flood can be expensive without insurance. FEMA estimates that one inch of water can cause $25,000 in damage. How can a seemingly low level of water rack up such a price tag for repairs? Your clients should be aware that wet flooring may be only the beginning of their flood damage:
- Foundation – Depending on how the surrounding ground absorbs floodwater, a foundation may shift and crack, with a domino effect on the entire home structure
- Windows and Doors – If the foundation shifts or framing swells, the distortion can warp windows and doors
- Mold – what can’t be seen can definitely hurt. Even a small amount of water in walls or foundation can cause dangerous levels of mold to form and grow.
- Insulation – Many types of home insulation are fiber-based and compromised by contact with water
- Furniture – Floodwater isn’t just water and may contain biological contaminants which are difficult to fully clean out of upholstery.
- Appliances – Refrigerators and ovens rely on insulated layers that are ruined if water seeps in
- Flooring – Carpet and the underlying padding will need to go, but tile may survive
#4 – Flood insurance is not just for homeowners in high-risk zones
If you have clients who live outside of a mandatory A or V flood zone, they may think that flood insurance is a waste of money. But according to FEMA, over 20% of NFIP flood insurance claims are for properties outside of high-risk flood zones. When you talk with clients about their homeowners policies, it may be worthwhile to remind them that it won’t cover flood damage. Point out that a flood can originate from a variety of sources, not just rivers and oceans, and at any point in the year, not just during hurricane season.
#5 – NFIP premiums are going to change under Risk Rating 2.0
The NFIP maximum of $250,000 in residential structure coverage hasn’t changed for decades. However, with Risk Rating 2.0, NFIP premiums will change. Your clients insured through the NFIP may be facing a spike in their flood insurance premiums over the next few years, so they could be paying more for the same limit of coverage. And if their home is now more expensive to repair, $250,000 doesn’t go quite as far.
Unfortunately, with flood insurance there are not built-in features found in many homeowners policies, like inflation guard or guaranteed replacement cost, protecting your clients against these year-to-year fluctuations. That’s why it’s important to review options with your clients at every renewal, to help ensure they are adequately covered. The good news is that EZ Flood® rates are unaffected by Risk Rating 2.0, and you can offer coverage beyond the NFIP maximum. In today’s unprecedented market, this may be a great option to explore with your clients.
Want to learn more? Watch our Learn in 10 Webinar, Flood Coverage Adequacy & Replacement Costs, led by Larry Mitchell, Aon Edge Business Development Executive and flood insurance veteran. And if you need some materials to help get the point across to your clients, download our infographic illustrating the why it’s important to have adequate flood insurance coverage.