The rain that impacted California last week ended up compounding into serious flooding and other issues that previously unaffected regions were not prepared for. For many years coastal cities and traditional flood zones knew the risks that came with heavy rain, but this month many areas were completely caught off guard. The big surprise for homeowners looking to rebound from the damage was that their standard insurance policy does not cover flood damage. Flood and earthquake insurance are generally standalone policies that are purchased separately from a normal policy. This is because these policies can be expensive, and many owners only have them if they are required by lenders in high-risk areas. Additionally, homeowners policies will not cover secondary damage such as mudslides or debris flow that can come well after a flood.
In California it is estimated that only 230,000 properties have flood insurance which represents less than 2% of all buildings. I have many clients asking me about earthquake insurance, but less often about flood insurance. These additional policies can be added separately for a property, but not during an ongoing peril event such as heavy rains or active earthquakes. This means that budgeting for the right insurance for your property beforehand becomes a priority before any potential issues arise. Another consideration is that if you buy a home that FEMA has deemed to be a high flood zone you are required to have flood insurance if you have a federally backed mortgage like an FHA loan for example. That means potentially around another $950 a year in addition to a normal homeowners insurance policy.
Insurance inevitably becomes an expense associated with homeownership that needs to be factored in when deciding to purchase. Risk tolerance is important when considering all potential perils that could need to be protected against. If you are deciding to buy or need to review your insurance needs for 2023 please reach out to me or speak with one of the insurance professionals that I refer to my clients!