Paycheck Chronicles

Do I Need Flood Insurance?


After several weeks of devastating flooding, homeowners all across the country are asking themselves, "Do I Need Flood Insurance?"  That's a complicated question, but I think that most people should, and I'll tell you exactly why.

Everyone Lives In A Flood Zone

I've heard at least 100 people say, "We don't have flood insurance because we don't live in a flood zone."  That's just wrong.  Everyone lives in a flood zone of some sort, most people just don't live in a high-risk flood zone.  One-third of federal disaster money for floods is paid out to people who don't live in high-risk areas.

Insurance Is For Stuff That Doesn't Happen Often

In its essence, insurance is designed to protect against unlikely, catastrophic loss.  In most cases, flooding is both unlikely and catastrophic.  However, so is a house fire, and we all insurance against that, right?  And most people carry life insurance even though most healthy 20 and 30 year olds won't ever use it.  Why would you think about flood insurance any differently?

Floods Do Happen

On the other hand, flooding isn't so unlikely that insurance isn't justified.  Floods are the most common natural disaster in the United States.  Flooding occurs from more than just tropical storms, including melting snow, damage to dams or levees, flash flooding from regular storms, and surprise flooding with regular rain if the ecosystem has been altered.

It's Relatively Cheap

The average flood insurance policy in the United States costs around $700 per year, and it is significantly less expensive if you are in a low-risk area. Just one inch of water in your home can easily cause $20,000 in damage. Your car can be swept away with just two feet of water, and a flash flood can bring 10 to 15 feet of water sweeping quickly into your area.

Flood Insurance Is A Must For Landlords

There is no question in my mind that landlords should carry flood insurance on their rental properties.  First, most government assistance programs are only designed to help repair owner-occupied properties.  Is your house maintenance repair account robust enough to rip out the drywall on your first floor, replace the wiring and everything else damaged?

Second, the cost of flood insurance is a business expense that can be used to offset income or provide a loss.  This will probably result in a lower tax liability.  Every reason homeowners should have flood insurance is amplified for landlords.

It's important not to discount the peace-of-mind factor of having flood insurance.  Elizabeth Colegrove of The Reluctant Landlord, who owns 8 rental properties, recently shared, "At the end of the day, the $300 that I spent protecting my investments is priceless in the sense of stress prevention. During the last storm I was freaking out because I didnt have flood insurance.  It is something I never want to do again."

Obviously, the decision whether to buy flood insurance is intensely personal and there is no single right answer for every situation.  However, I hope I've convinced you that flood insurance is the right choice for most property owners.

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