PASADENA, Calif. -- Experience teaches; but only if we pay attention. Recent events in California have underscored the value of a flood insurance policy underwritten by the National Flood Insurance Program (NFIP).
Millions of homes and businesses throughout America and more than 267,000 in California are now insured under the program. Tens of millions more are uninsured and susceptible to flooding. Californians who purchase flood insurance pay an average annual premium of $628 for a replacement cost policy averaging $231,000 of coverage.
Let’s see how the numbers work for neighbors with and without flood insurance:
Family NFIP and Family Non-NFIP bought nearby homes in 1997 and had everything in common except flood insurance. For 10 years, Family NFIP paid $1,600 per year total for flood insurance and homeowner’s insurance, while Family Non-NFIP saved money by purchasing only a standard homeowner’s policy. Both houses were worth $200,000 before a river of mud destroyed them. Here’s the accounting:
|Insurance Coverage for 10 Years||With NFIP||Without NFIP|
|Annual homeowner's insurance premium||$1,000||$1,000|
|Annual flood insurance premium||$600||$0|
|Total premiums paid in 10 years||$16,000||$10,000|
|Loss Experience this Year||With NFIP||Without NFIP|
|Damages from flooding||$200,000||$200,000|
|Less insurance payout after deductible||$198,500||$0|
|Net expense vs. loss||1,500||200,000|
|Plus 10 years of premiums||$16,000||$10,000|
|Total out-of-pocket cost to rebuild||$17,500||$210,000|
Today, Family NFIP remains financially stable even after their house was destroyed. This year, should they choose to rebuild on the same lot, they can do so on an elevated foundation which will place their home’s first floor at or above the high-hazard floodplain. Their new house will be a safe, modernized, more valuable version of their original house, with their only out-of-pocket costs being $16,000 already paid for 10 years of premiums plus the $1,500 total deductible. They may also use their insurance benefits to buy or build somewhere else.
The family without flood insurance has fewer options. Family Non-NFIP collected a fraction of the value of their house for the damage covered by homeowner’s insurance. Although they saved $6,000 in 10 years by not buying flood insurance, they’re out a whopping $210,000 after the loss of their home. And for this family, there could be the costly matter of clearing their lot of the debris of their home.
To find an insurance agent who handles flood insurance, visit www.floodsmart.gov or call 1-888-435-6637.