Iowa Floods: Reconsidering Flood Insurance

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This is not how I like to get reminded of things, but sometimes that’s just how it goes. I hope all those out there affected by the floods are at least safe. A few months ago I wrote about buying flood insurance even if you are not required to by your mortgage lender. This means you are outside the 100-year floodplain, but could still be in the 500 year floodplain (1 in 500 chance each year, or 0.2%). Check if you are in a flood plain here. We got quotes, but never actually got around to buying a policy due to a combination of cost concerns and simply forgetting about it.

1 in 500? Why bother? Well, reports say that one third of Iowa is currently underwater. From one local newspaper:

“We’ve been taking a lot of calls, but most people don’t have flood insurance,” said State Farm Insurance Agent Doug Valentine. “This flood has blown through the 500-year flood plain and most only have to have insurance if they are in the 100-year flood plain because the banks require it.”

Valentine said many homeowners will soon face a difficult decision on what they will do given many will still have mortgage payments to be made and no insurance to cover rebuilding. “They may have to plow it down and will have $200,000 in payments on a $100,000 house,” he said.

This got me thinking – how likely do you think it is that your house will burn down, which is a major reason for homeowner’s insurance? Perhaps a 0.2% chance each year of severe flooding is worth insuring against. Insurance is all about paying to transfer the risk for events that can crush you. On that note, I also will need to check if our policy cover sewer backup, which has also caused a lot of damage in the Midwest.

Comments

  1. Flood insurance is so cheap too, if you don’t need it.

    We are in a unique situation where we bought in a 100 or 200-year flood zone (don’t even remember). Flood insurance not required. But we live in a basin, basically, and the entire area has been subjected to many floods. So we bought flood insurance Day 1.

    What convinced us was that my parents lived in a 100-year flood zone and there were many years early on where we worried about flooding (with time and improvements it has gotten better). But even moving from out of the area we were well aware we were buying in a low lying area that flooded. They claimed the levees would protect us, they were improving them, and we didn’t need the insurance.

    But we tend to be rather conservative and on the safe side. $300/year to protect our HOUSE? Why not?

    Anyway, there is a lot of politics going on around the flood status of our neighborhood. It recently came to light that we live in a FIVE year flood zone. Something like that, and all new construction is halted. Technically all houses here should be on stilts.

    I keep reading in the paper that to-date only 1/3 of residents here have bothered to buy flood insurance. It will be required come January. But meanwhile, years of media coverage about the danger of the area and 2/3 o f the people haven’t bothered to buy the cheap flood insurance? I don’t know what people are thinking. I honestly don’t understand why one would buy here without flood insurance. But after New Orleans (which has been compared much to our city) and the news our house should be on stilts, you wonder what people are thinking…

  2. You might also check to see if your insurance covers damage from water from say a failed dam. Here in Indiana I’m hearing things about insurance companies denying coverage to folks with flood insurance because the damage was from water from a failed dam; the rain itself wouldn’t have caused the flooding.

  3. Most people don’t buy because if a flood hits, the gov’t declares a disaster area, and you get money for it.

    Its the same thing with earthquake insurance here in California. Almost no one buys it here, even if your house is on a slope on top of a earthquake fault because its expensive and if an earthquake hits, alot of people are affected and the gov’t declares a disaster area and everyone gets money without having to have paid for insurance.

  4. Good Money Blog says:

    Other than checking FEMA maps, we can also look at the terrain views in Google Maps to determine if our homes are up in the hills.

  5. We live about 100 yards away from a decent sized lake, but for whatever reason we don’t fall in a flood zone, and thus most neighbors don’t have flood insurance.

    We’re elevated pretty high from it, but man i am REALLY considering picking up a plan this year….i briefly checked insurance rates at USAA, but it seemed a bit much at the time, i’ll have to research more this go around.

  6. If one has renter’s insurance, is one covered in case of a flood? Is this policy dependent?

  7. Flood insurance is absolutely worth it. My mother’s house is not in a flood zone, but she has kept flood insurance on the house for over 20 years anyway without a drop of water ever coming inside… Until Katrina. Five feet of water in a house that is 25 feet off the ground. Needless to say, she was very happy that she had kept the flood insurance all those years despite sometimes having to jump through hoops to make sure it was still covered.

  8. I believe that USAA insurance automatically includes flood insurance in their policies.

  9. This reminds me of a situation here in CO a while back. Where I live we are in a rain shadow and get very little rainfall. In fact, its basically a semi-arid desert though you wouldn’t know it because we trap so much of the melting snow and divert it to rivers around here that its a really lush place. Well a few years back, we had a freak storm with several days of rain and had a 500 year flood. It utterly wrecked Colorado State University and a ton of homes…people who thought they would NEVER need flood insurance.

  10. Patrick says:

    I like how the picture says that everyone is at risk. I’m pretty sure I’m not at risk on the 16th floor of my condo.

  11. ObamaOsama says:

    Iowa thinks they were better than the other states, and have a god-given right to hold their caucuses first, so as far as I’m concerned they deserve these floods. I have no sympathy until they reconsider their Iowan-supremacy.

  12. Patrick – won’t it be hard to get upstairs when the first few floors are underwater? Will the elevators be operational with water filling the shafts? I hope your HOA dues cover that!

  13. Don’t count on the gov’t for help. We had floods here last august and despite all the promises, many people are still struggling to get help. Those fortunate enough to receive gov’t aid got at most $23,500. That doesn’t go far to cover rebuilding. Others get low/no interest loans, but you still have to pay it back.

    Also, just because you have flood insurance doesn’t mean you are covered. Not all situations are covered. Also, if you have a basement that is not a walkout, it’s not covered. Where do you think all that water is going to go first? To be fair, the major mechanicals in a basement are covered (furnace, etc). Bottom line: for any insurance be sure you know not only what is covered, but what is not. It’s the not covered part that catches people unaware.

    How are you affected on the 16th floor? MOLD. All that water causes lots of mold problems and if not addressed fast enough, the whole building can be condemned for health reasons.

  14. “Insurance is all about paying to transfer the risk for events that can crush you.” Very true. This once sentence says the main thing people need to think about. Insure yourself against the large costs (obviously the insurance company is charging enough to make a profit and pay out claims so in general insurance is a losing bet financially). But you need to cover not on average but the big losses. This is why high deductibles are usually a good idea.

  15. Patrick has his head in the clouds it seems. As was stated, it’s going to be the common areas that you are going to be hit with and a possible condemnation of the entire building if there is structural damage. Also don’t forget that when a disaster hits, licensed construction crews will be in short supply, so those ‘small problems’ quickly become big problems.

  16. I am pretty certain that flood insurance does not cover personal items — simply structural damage. It’s not actually all the cheap, given pretty limited coverage.

  17. This is so sad. It is for reasons such as this that personal finance classes should be taught in school. Maybe if these people had been taught that insurance is to protect your assets from the chance of loss (or risk) then they might have realized that there still is that chance and therefore flood insurance is a necessity. Hopefully everything works out relatively well…

  18. @melvin: of course Patrick’s head is in the clouds… he lives on the 16th floor! :-D

    @obamaosama: you can have the early ones if you want…. I’d rather be dead last than see EVERYBODY’S crappy advertisements for the whole 4 years before an election….

  19. Very serious?
    A little worrisome.

  20. ChrisMR says:

    My understanding with flood insurance is that anything that is not NAILED DOWN is not covered. I think the way it was described to me is that if you pick your house up and shake it, anything that falls out, isnt covered.
    Then of course, there are the dam failures, etc that people speak of.
    It seems that insurance companies will do anything they can to avoid paying on that which they are insuring.
    Guess you just have to be mindful of what you are paying for, and what you are getting.

  21. Jonathan says:

    I live just north of Des Moines about 30 miles, and thankfully our home is very “high and dry”. It wasn’t luck, mind you, that kept us from being waste-deep in water, but thoughtful planning of where to choose our location. In fact, with all the rain, my lawn has never been greener. I realize thats a fairly harsh attitude, but folks who live on the other side of a levy, or near a 100- or 500-yr flood plain should factor in the risk.

    I am tired of the Federal (or state) government having to step in and bail people out, saving them from the full consequences of their decisions. New Orleans is a catastrophic example of 1) uninsured or under-insured homeowners, 2) an entire city of people who didn’t heed the warnings, even evacuation orders, 3) an entire city of people who didn’t have the forethought to plan ahead in the event of food/water shortages, and 4) the grand looting finale with everyone blaming the government for their problems, (i.e. ‘not acting fast enough’).

    On flood insurance, it makes sense if you are in a 100- or 500-yr flood plain. But I don’t appreciate the scare tactics (either offered by insurance companies, or the US government which is subsidizing said insurance companies) that send out the message that *everywhere* is susceptible to flood/flash flood conditions. This simply is not the truth, but more policyholders makes the cost of insuring the masses more profitable.

    What will inevitably happen now is folks will rebuild; those that don’t accept some sort of government-sponsored buyout will even build on the same piece of water-logged dirt that may get flooded again.

    What people don’t realize is that flood-plains actually help not only the environment, but reduce water levels downstream as the water “spreads out” and can evaporate and soak into a larger piece of ground. Our sophisticated “levee system” simply passes the problem (water) downstream to another community that has, perhaps, a less-sophisticated wall in place. Eventually, somebody is going to get hit hard because the water isn’t allowed to overflow its bounds all along the river, until it is so incredibly high and powerful, it knocks down levees.

    Hope I haven’t offended anyone; if you or yours have been hurt or damaged in the flooding, my condolences. Life can be difficult. And learn from your mistakes, and move on.

    Regarding ObamaOsama’s comment, I don’t understand why Iowa caucuses are first in the nation, either. I suppose Harkin and Grassley have something to do with it.

  22. ChrisMart says:

    I have heard that The Federal Emergency Management Agency (FEMA) has told city officials it will take another look at the floodwalls before its publishes new flood insurance maps that could require city property owners to buy millions of dollars worth of new flood insurance.

  23. Glyphius says:

    flood insurance is generally not included with most regular home owner’s insurance. This is possibly because most homes are not located in regions or areas that flood. Since it only takes one flood to ruin a home, however, you should probably try to get some flood insurance.

    Keep in mind that depending on where you

  24. A bit out of the loop on the flooding — can you tell us more about sewer backups causing a lot of the damage? That would be a bigger concern to me than the flooding.

  25. rubin pham says:

    i live in a flood zone and required to purchase flood insurance.
    the cost is pretty steep. $1000/year for 250k coverage with 1k deductible.
    i plan to pay off my mortgage in 10 years. after that i will probably drop this type of insurance and take my chance with the santa ana river in california.

  26. My last home was not in the flood plain but my front yard was. I lived in it for 20 years but never bought flood insurance. One thing you might also consider is to purchase a small amount (say $20K) to fix things up if you have a minor flood that just damages the basement. For a lot of people that is a much more likely ocurrence.

  27. clicclic says:

    My friend’s basement / first floor in his trilevel was destroyed by backed -up sewage. His house didn’t flood at all in the actual storm, but eventually DID flood courtesy of backed up sewage. The sewage came up through the shower he had in the basement. The water rose to around 3 1/2 feet in his basement/first floor.

    The “sewer water” was exactly that, only diluted to a great degree because of all the rain. Can you protect yourself against that? I’m not sure, but perhaps there is insurance for just that calamity.

    The only issue is cost – how much friggin’ insurance do you need/want? You’re talking $30 – $70 / month on top of all the other monthly bills.

  28. Brandon says:

    Clicclic – my agent in Cedar Rapids can include sewer back ups (up to 4.5 feet) in basements for about $55/annualy with a $1000 deductable added to home owners. Others add it for $30/year but only cover 18 inches worth of damage.

  29. Jonathan says:

    clicclic:

    Yes you can protect against sewer water backing up into your basement. You need to install a uni-directional valve so that water can flow TO the sewer, but never backwards. Our entire neighborhood had this issue 10 years ago, and every house on the street had sewage covering their basement floor. Fun fun!

  30. First of all, I fail to see the connection between Iowa’s political caususes and the recent floods. I had 7 feet of water in my basement and Flood Insurance would have paid nothing since it does not cover contents and the water did not reach the main floor of my house. I spent $700 last year to get out of the flood plain. I would really like to know where you can get flood insurance for $300. I was paying $828 for something that would not benefit me at all. I think it’s a big rip off.

  31. Dan Puroclean says:

    What people don’t realize is that flood-plains actually help not only the environment, but reduce water levels downstream as the water “spreads out” and can evaporate and soak into a larger piece of ground. Our sophisticated “levee system” simply passes the problem (water) downstream to another community that has, perhaps, a less-sophisticated wall in place. Eventually, somebody is going to get hit hard because the water isn’t allowed to overflow its bounds all along the river, until it is so incredibly high and powerful, it knocks down levees.

  32. Jumper Rental says:

    What Dan Says is true last week we had a major flooding issue. We had a home inspector come out and he said that if we didn’t live next to a flood plain we would’ve had an even bigger issue.

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