Last updated on November 14th, 2021 at 04:59 pm

This topic is something that I have to contend with constantly and yet, I have never written about it. Recently a visitor to this site asked about flood and wind insurance so it’s time to explain these somewhat obscure products. If you live in the interior of the country, you probably have never heard of wind hazard insurance. The same is true of flood insurance if you live away from bodies of water. So what are these products and why are they necessary in some areas of the country.

Should you be in the market to buy or sell a home, keep in mind that insurance brokers may be prohibited from issuing new policies during periods when a storm has just received its name and it is within a specific distance of the U.S. coast or your area. It may be a delay of up to 10 days before agents will be allowed to resume writing policies. Be sure that your policies are current. Most property owners have their mortgage companies pay insurance premiums. Do not rely on your mortgage company to make your insurance payments on time.

Dont’ rely on others to keep your policies current

I have been without various policies from time to time for a variety of reasons that include; the mortgage company failed to pay on time or until I called; Agent did not forward the new premium to the mortgage company; The amounts or addresses were wrong; the dog ate it policy. You can not be without a policy if there is a pending storm or event. Make a list of when your policies are due, the name of the agent, and contact information for your mortgage company. If you own the property outright, have an understanding with your agent that they notify you the full 30 days in advance of the pending payment due. I recommend you pay with a credit card to avoid the mail.

A couple of reminders before we go into more detail on these two key insurance products. No need to shop for flood policies, there is one supplier and one rate for you. You could get your property re-rated upon request but that is a subject for another day. The wind hazard policy however is different. Each carrier has its method of assessing cost. I have changed carriers many times to receive a reduced price for the same coverage. This is why working with a broker who represents multiple carriers is a good thing. Many insurance companies do not carry wind insurance. USAA is a big insurance provider and they do not as of this writing offer wind. Other very large companies also do not offer wind.

Wind insurance is a special product and most carriers have exposure limits. For example, company X may have decided they will allow up to 20,000 policies in a given area. When they hit that limit, they pull out of that state for that product. It happens often. Almost as soon as one pulls out, a new one comes in. There are admitted and non-admitted carriers. The admitted carriers have deposits with the state insurance commission and the non-admitted do not. It’s a rare case that a carrier defaults, if an admitted defaults there are at least some funds to cover costs with the deposits. I have used both.

Flood Insurance

Starting with flood insurance, the most common of the two types of insurance products discussed here. Your federal government is the primary issuer of flood insurance (some private companies issue flood policies). Policies are issued through insurance brokers so it may seem like you obtained it from a company but the backer is the U.S Government. The program is officially called the National Flood Insurance Program (NFIP). FEMA administers this program.

Some standards apply across the country. For example, the limit of the policy is $250,000 in protection. That’s good for homes valued at or below this amount but not so good for homes in the million-dollar range. One thing I want to clear up now is that your flood insurance policy is only good when there is an actual flood from surface waters. This means that if there is heavy rain that floods your home, your flood policy will probably not cover it.

Look to your homeowner’s policy which I will discuss later to cover most water damage caused by broken water heaters etc. The flood program is designed for people who experience flooding from the sea, rivers, dam overflows, and similar events. The majority of homes in the U.S. are not in a FEMA flood zone.

FEMA Flood Zone

I had to learn this stuff when I moved my business to a location in Anaheim, CA near the Santa Ana River. As it happened, the building I was leasing was considered to be in a flood zone. AE to be exact. Hard to understand because the river is dry most of the year and there had not been a flood in 90 years. I never lived in an area that required it before or since until I moved to the Mississippi Gulf and bought a house on a bayou.

FEMA creates maps of areas where potential flooding can occur. They probably create maps for the entire country if for no other reason to indicate that a property is not flooded prone. If you live in an “X” zone, FEMA considers the likelihood of a flood to be minimal to be non-existent. “X” is the best zone. Following “X” is “AE”, this zone is a possible flood zone. From what I have learned, many properties in the “AE” zone have flooded at least once in the past 100 years. There are also 500-year flood zones, not “X” but a method to evaluate risks.

If you are going to build in an “AE” zone, there are elevation requirements e.g. 16′, 22′ etc. above mean sea level. Lenders will require flood insurance for properties in an “AE” flood zone whereas they do not require flood insurance in an “X” zone. There are properties that while they are in an “X” zone should have flood insurance because they live close to a water source e.g. a beach. For the fairly low cost of flood insurance, it may be prudent to have it in some “X” zones.

There are several types of zones and as mentioned 100, 500-year flood factors. Then there is the “velocity” zone. Wow, this is the zone where people build on the beach or a riverbank. Many homes in the Mississippi Gulf Coast that were built before hurricane Katrina in what is not a velocity zone were flooded or destroyed. FEMA remapped much of the U.S. coastline after that and other hurricanes. Let me give you an example.

I looked at a house two streets in from Biloxi bay. Very nice area near a gulf course. I thought it would be a great vacation rental property. Because it is near water, the first thing I looked a was the flood insurance policy. The real estate agent told me that there was none to be assumed. I called my insurance broker and he told me that a policy would start at $8,000 per year and perhaps go to $20,000 per year. That house is still on the market.

Assuming a flood policy

A bit about assuming an existing policy. FEMA has a provision that permits the assumption of an existing policy from the former owner. The rate remains the same. For example, the rate for my house on the bayou at a maximum of $250,000 coverage is $560 per year. If I sold my home and the policy was in effect the new buyer could take it. Some policies are higher in the $1,200 per year range. Part of the problem with the program is that it is always out of funding. The rates charged come nowhere close to the amount they payout for floods each year.

Another thing that weighs on the fund is that FEMA has for years increased the amount of money they simply hand out to victims of natural disasters. They hand checks to people who failed to obtain flood insurance policies. Granted the amounts are not the same but when the program started it was supposed to be fully funded by the insured. This brings me to the current state of the program.

Congress creates the NFIP

Congress keeps kicking the can down the road. At present, the program is scheduled to change on January 1, 2022. Two key elements will be changed. After April 2022, no grandfathering provisions will be accepted. This means renewals will be at new rates each year. No policy assumptions and general rates will be significantly higher. I was told that my current policy may go to $2,000 per year. The new program went into effect as of October 1. 2021 but congress put it off at the last minute until January 1, 2022, as mentioned.

The good thing is that both parties are in agreement that we need the subsidies for the flood insurance program and they will likely pass a bill that keeps the old program more or less in place with modest rate increases. Now, this is not a done deal but this crisis has been here several times and each time in the 11th-hour Congress has taken action. Consider the value of waterfront property around the nation. Consider the powerful people who own homes for example in Florida or New Jersey or on the California coast. See where I am going here?

Does your lender require flood insurance

Before you buy a property in a water area, check with the lender to see if they require flood insurance. Even when they do not, it may be a good idea to obtain it. Check here for the FEMA flood zone for the area you are interested in. Counties have FEMA maps online so you can also check them out for yourself. Call an insurance broker and ask what the policy cost is for the property you are attempting to buy. Also, ask the listing broker about an existing policy that can be assumed.

You may be able to assume a FEMA flood insurance policy from the previous owner if the policy is paid up to date and the previous owner agrees to make the transfer. In some cases the savings are substantial. The regulations are in the process of changing so after April 2022, this may be a moot point. Ask your real estate agent about the status of congressional legislation that will affect the NFIP.

Don’t let the idea of having flood insurance scare you away from buying a beautiful home on the beach. Contractors who are building now use FEMA specifications to keep the cost of flood and hazard insurance down by for example building higher.

You can visit the website “Flood Factor.Com” to obtain more information about what this site has determined as a risk factor. Do not let the site scare you away. I recently looked up a rental property and was surprised to see that it was listed in the highest risk category. After reviewing the report, I noticed that they estimated that the property was at a 1.5′ elevation. I can only assume that this elevation was for the entire zip code.

The building that I own is elevated 20′ above the ground which probably means about 24′ or more above mean sea level. In this case, the risk factors are much reduced to the point that it is unlikely to flood at all. If the property you are looking at is at a higher elevation then you need to consider that.

Wind hazard

Buying insurance for your home in many areas of the country is fairly simple and at a reasonable cost. If you live in an area without major issues e.g. flooding, wind, mudslides, tornadoes, hurricanes, freezing, etc., policies are not too expensive. If you live in one of the other areas, your policies will reflect the risks insurers take. Along the Mississippi Gulf Coast (and most other coastline areas), high wind from storms and hurricanes can take their toll. The cost to repair a roof and the damage caused when the roof goes missing can be considerable. Check out this FEMA wind map https://www.fema.gov/pdf/library/ism2_s1.pdf

Wind policies are separate

Wind policies are not included in a general household insurance policy, they are a separate product. For years after Katrina, companies would write a general policy but would not include wind. You had to find a carrier who would write a wind policy. To get a reasonable price for a wind policy, the age of your roof and the soundness of the roof were considered key. They still are and in fact, a roof over about 15 years old may have a supplemental cost included in the wind policy. A new roof will usually obtain a lower cost premium. Roofs are rated for wind and FEMA has set standards for areas. Look at this website for more about roofs https://firstamericanroofing.com/roof-wind-damage/

Type of roof matters

The type of roof matters. If you have a “3 tab shingle roof” vs an “architectural shingle roof” your policy may be more expensive. The architectural roof is preferred for cost as they last longer and generally have higher wind ratings. Metal roofs are popular in this area, they have high wind ratings as well. If you are considering buying a home, ask about the age of the roof, depending upon the age you may want to adjust your offer. A roof can cost anywhere from $10,000 to $30,000 for single-family homes.

When a named storm arrives, that is a storm that has been given a name because of its intensity, your wind policy will kick in if there is damage to your property due to the velocity of the wind. My office sustained damage to the shingles after a hurricane. This caused the roof to leak. I claimed the wind policy and it compensated me to install a new roof and make other repairs. The property was not flooded but there was water damage inside so the wind and general hazard policy covered the water damage.

Had there been a flood e.g. wave of water arriving inside the house and the roof was damaged, both insurance policies would have provided support.

Deductibles

Wind policies have a deductible. This can be as low as 2% of the total or as high as 7-10%. The deductible is listed in the policy and is not subject to change during the policy period. In the case of my office, it started at 2% when I obtained the policy but went to 5% a few months before I made the claim. There is a general trend to increase the deductibles and also raise the rates you pay each year. Insurance carriers have seen record claims the past few years. Not only are there more claims but the values of the claims are much higher.

The cost of repairs must keep pace with the rapid rise in the cost of supplies. We are all paying the increasing costs of material shortages which include transportation and other costs. I always include in the analysis I do for property investors, an inflation factor for everything including insurance.

Should you have a claim against your wind policy, the insurance company will send an inspector. That person will calculate the cost of repair deduct the percentage you are responsible such as the 5% in my case. The next step is to send a check to you for the amount less the deductible. Depending upon the amount, the check could be made payable to you or you and your mortgage company. If it’s a large amount and the mortgage company must sign off, they may require you to do some repairs before they sign off.

No mortgage company wants a damaged house that lowers the value. An insurance settlement intends to make repairs. Some people do the repairs themselves and in this way use what they received and cover the deductible with their labor. A good friend of mine is an office adjuster, someone who receives the information from the on-site inspector and makes a final determination of the amount to be paid out. He told me that the insurance companies are generally on the generous side which means that for many homeowners if they shop around they may find contractors who can do the work for close to the amount of the settlement.

Helpful hints

If you live in an area prone to flooding or storms, take an inventory of your property. Lawnmowers and large equipment should be photographed. Do the same with computers, furniture, and more expensive items. Do a video of each room and outside. Keep this data in the cloud. Create a spreadsheet and value everything you have according to what you paid for it and when you acquired it. You need not be perfect but close.

Should you be a victim of a wind hazard event that causes your roof to leak or it may leak soon, hire someone to tarp the roof immediately. Most insurance companies will reimburse you for this effort as it mitigates the damage they will have to pay. Obtain a receipt. Take photos before they tarp and after they tarp. All insurance companies tell you to take measures to reduce further damage when it is safe to do so.

Prepare to leave your property should a hurricane, a tornado comes to your area. Make a list in advance of the items you need to take with you. If you have more than one vehicle, arrange to move it to higher ground in the case of a hurricane. Use this link to FEMA for any further questions: https://www.fema.gov/flood-insurance

Authors Note

If you are interested in buying property along the Mississippi Gulf Coast and would like more information about insurance requirements or buying a lower risk property, contact me [email protected] or visit my real estate website Gulf Coastal Realtors