Photo (cc) by Brian Birke
Hurricane Sandy affected areas from the North Carolina coast through Connecticut, causing $30 billion to $50 billion in losses. But according to a recent Wall Street Journal article, catastrophe modeling firm Eqecat says only about $20 billion will be covered by insurance.
The primary source of uninsured losses will be from flooding. Flood damage is reimbursable only by flood insurance, which many Sandy victims don’t have. Flood damage is costly: Though prices vary by location and type of home, The National Flood Insurance Program’s online tool estimates a 1,000-square-foot home with 6 inches of flooding could cost $20,150 to repair; a 2,000-square-foot home with 6 inches of water could reach $39,150 in damage.
A recent article from The Weather Channel quotes a former NFIP director who suggests only 15 to 25 percent of at-risk properties in the Northeast are insured for flood losses. Another expert in the same article suggests that even some homeowners required to have flood insurance don’t.
Read on for ways to better prepare for natural disasters, how flood insurance works, and how to cope with property damages.
Preparing for a hurricane
If you’ve watched the news in the days prior to hurricanes, you’ve seen videos of boarded-up windows and people stocking up on bottled water and other supplies. While those are good last-minute preparations, proper protection starts with having a quality insurance policy.
Insurance for hurricanes is not a simple issue. In some parts of hurricane-prone states like Florida, complete coverage requires three distinct policies: one for flood, one for wind and the standard homeowners policy covering everything else. In the case of a hurricane, wind and flood damage are reimbursed only by the applicable policies. If you lack them, you’re on your own.
In regions where hurricanes are more rare, wind damage is typically covered by standard property insurance policies. But as we explained in Important Insurance Lessons from Superstorm Sandy, some policies provide for much higher deductibles in the case of hurricanes – as much as 5 percent of the value of the home. So a policy on a $300,000 home might have a $500 deductible in the case of fire, but a $15,000 deductible (5 percent of $300,000) in the case of a hurricane. And without a specific flood policy, there would be no coverage for flooding.
Sandy victims catch a break
Sandy was a very large storm, but not incredibly powerful as far as hurricanes go. In fact, according to the National Oceanic and Atmospheric Administration, it wasn’t technically a hurricane when it made landfall. Because of higher hurricane deductibles, this is very good news for Sandy victims.
The governors of New York, New Jersey, and Connecticut have already come out and said hurricane deductibles shouldn’t apply in their states, which, if they can make it stick, will save their residents millions in wind-related damages. But water is another matter.
How does flood insurance work?
Most major insurance carriers do not offer flood insurance. Because of the difficulty of finding it, the United States government offers flood policies through the National Flood Insurance Program, administered by the Federal Emergency Management Agency.
Depending on your flood risk, you can purchase a flood insurance policy from NFIP for as low as $129 per year. The highest-risk policies cost $7,173 per year to cover $250,000 in property and $100,000 in contents. Policy cost averages around $600 per year.
According to the National Flood Insurance Program, the average claim was just below $30,000 from 2007 to 2011.
Thank you, Hurricane Irene
If a homeowner lives in a flood-risk area and has a federally-backed mortgage, flood insurance is mandatory. However, in the Northeast, flood insurance is relatively rare. Last August, Hurricane Irene hit the Northeast and caused flooding in 13 Eastern states.
This scared many homeowners, who rarely see a tropical storm, let alone a hurricane, into purchasing flood insurance. According to a survey by the insurance industry, in areas hit by Irene, flood coverage rose from 5 percent to 14 percent.
Those homeowners may be very happy about that decision now. According to FEMA statistics, New York State has 168,905 homes covered by flood insurance, while hard-hit New Jersey has 236,038 homes covered. Nearby Pennsylvania, also impacted by this massive storm, has 72,521 homes covered by flood insurance. That’s an increase of 3 percent, 2.3 percent, and 7 percent respectively since Hurricane Irene.
What to do if you have damage
If you have damage, read your policy thoroughly to see what’s covered and what’s not, then contact your insurer. Keep in mind that in wide-spread disasters, insurance adjusters are normally available on a first-come, first-served basis.
Between attempts to get back to work, grappling with power outages, and trying to find a place to charge a phone, contacting an insurance agent might not seem like a big priority, but the opposite is true. If you have any damage to your home, car, or property from the storm, start working immediately.
What to do if you do not have flood insurance
If you don’t have flood insurance, it’s likely you’ll have to foot the bill. Start with a visit to FEMA’s disaster assistance site to see if you can qualify for federal assistance.
Another obvious source of funds is any emergency savings you have. While loans from a 401(k) or or other retirement account may also be a potential source, avoid making withdrawals, because you’ll likely pay a penalty for doing so, as well as add to your taxable income.
If you don’t have liquid assets, you may have to borrow to rebuild. When looking for loans, talk to the bank that holds your mortgage and local credit unions. You can also try non-traditional options, such as peer-to-peer lending. Whatever you do, make sure to borrow smart and avoid common mistakes.