Have you ever wondered if flood or earthquake insurance is worth it? If you have a mortgage, your lender might require flood insurance if you’re in a high-risk area.
However, earthquake insurance is rarely mandatory. And if your home is paid off, there are no requirements. But just because it’s not required doesn’t mean it’s not a good idea. From an insurance perspective, here’s what you need to know about protecting your home from floods and earthquakes.
Topics Covered
Why You Need Separate Insurance Policies
It’s crucial to understand that your standard homeowners insurance doesn’t cover damage caused by earthquakes or flooding. This means that if your home is damaged by one of these natural disasters, you could be left with a significant financial burden for repairs, unless you have the appropriate coverage.
Is It Worth Getting Earthquake or Flood Insurance?
In early to mid-July 2023, the state of Vermont was hit by a series of catastrophic flash flooding and river flooding. The most severe damage occurred on July 10th and 11th, when continuous heavy rain saturated the state with 3 to 9 inches of rain in just 48 hours. This event caused widespread and significant property damage, leaving a lasting impact on many communities. This real-life example serves as a stark reminder of the importance of being prepared with the right insurance.
Floods are becoming more common and more severe due to global warming as a result of climate change. This leads to more evaporation and moisture in the atmosphere, which can result in heavier rainfall. Combined with changing landscapes, this significantly increases the risk of severe flooding. Understanding these factors can help you determine whether flood insurance is right for you.
Consider that for every 1-degree Fahrenheit increase in temperature, the air can hold about 4% more water vapor. In the past century, the average surface temperature has risen just over two degrees Fahrenheit, resulting in about a 9% increase in moisture in the air.
Recent studies suggest that hot and wet conditions will continue to become more common in the future. When heatwaves occur before heavy rain, the soil dries out and loses its ability to absorb water, making flooding more likely.
Does this mean that everyone needs earthquake or flood insurance. Not necessarily. What matters most in making this decision is where your house is located. Here’s what you need to know:
Flood Insurance
Required in High-Risk Areas – If you’re in a high-risk flood zone, your mortgage lender will likely require flood insurance. Medium-to-low-risk areas may not have this requirement, but it’s still a consideration since over 20% of flood claims come from these areas.
Potential Damage Costs – Just an inch of water in your home can lead to tens of thousands of dollars in damage, making flood insurance a wise investment even outside high-risk zones.
Earthquake Insurance
You might be surprised to hear this, but New England is actually earthquake country. While it doesn’t have nearly as many earthquakes as in places like California or Japan, it still has its fair share of tremors.
New England’s history with earthquakes goes way back. When the first explorers arrived, they were startled by vigorous shaking and rumbling beneath their feet. They soon learned from the Native Americans that this was not an uncommon occurrence in the New World. The Plymouth Pilgrims felt their first earthquake in 1638, which was quite a shock! The tremors rattled dishes, doors, and buildings, sending people working in the fields running in panic.
So, do you need earthquake insurance if you live in New England?
It’s probably a good idea.
High Seismic Areas – If you live in an area prone to earthquakes, this insurance is worth considering, especially if you own an older home.
These types of homes may be especially vulnerable to quakes:
- Brick Homes
- Stone Homes
- Homes with Raised Foundations
- Homes Not Retrofitted for an Earthquake
What Do These Policies Cover?
Understanding what’s covered by flood and earthquake insurance can be tricky. Here’s a quick guide:
Flood Insurance
Building Coverage – This insurance covers structural damage and built-in elements like plumbing, heating systems, cabinetry, and appliances.
Contents Coverage – This type of insurance protects your personal belongings inside the home. Exclusions – Basement improvements, sewer backups (unless caused by flooding), and leaky pipes (covered by homeowners insurance) are typically not covered.
Earthquake Insurance
Dwelling Coverage – This protects the structure of your home.
Personal Property – This covers items inside your home.
Additional Living Expenses – This pays for temporary housing if your home is uninhabitable during repairs. Exclusions—Common exclusions are sinkholes, landslides, and mudslides, and some external structures might not be covered.
Deductibles and Coverage Limits
Both flood and earthquake insurance policies come with their own deductibles, which can be higher than those for standard homeowners insurance. Earthquake insurance, for instance, often has deductibles calculated as a percentage of the damage. For example, a 15% deductible on $100,000 in damage means you’d pay $15,000 out of pocket.
However, speaking to a local insurance expert is essential to get a customized quote that meets your unique needs since every policy is different, and there is no one-size-fits-all approach.
Costs of Flood and Earthquake Insurance
Flood and earthquake insurance costs vary widely based on your location and risk level. On average, flood insurance through the National Flood Insurance Program costs about $859 annually, while earthquake insurance averages around $800 annually.
However, in high-risk areas, premiums can be significantly higher.
Ways to Reduce Your Premiums
Need to reduce these premiums? There are some common ways to reduce your costs.
- Opting for a higher deductible can reduce your premiums.
- Bundling policies, such as combining flood and earthquake insurance with your homeowners policy, can reduce your costs.
- Retrofitting your home to withstand earthquakes or elevating utilities to protect against floods.
How Much Coverage Do You Need?
Your coverage should be sufficient to rebuild your home and replace your belongings. This often means insuring for the cost of rebuilding, not the market value of your home. If you have a mortgage, ensure that any lender-required coverage meets your actual needs.
Post-Mortgage Considerations
Even if you’ve paid off your mortgage, maintaining adequate insurance coverage is still a good idea. Without a lender’s requirement, the responsibility to protect your investment entirely rests on you.
When your home is fully paid off, you have significant equity that needs protection. A natural disaster could wipe out your life savings if you don’t have the right insurance.
Here’s what to keep in mind:
Equity Protection: Without a mortgage, you have more to lose. Insurance safeguards the full value of your home and personal belongings. Peace of Mind: Knowing you’re covered in the event of a disaster can provide invaluable peace of mind.
3 Steps to Get Started with Flood or Earthquake Insurance
If you’re considering flood or earthquake insurance, doing your homework is crucial. Start by:
#1 – Assessing Your Risk
To understand your risk level, use tools like the U.S. Geological Survey’s seismic maps and FEMA’s flood maps.
#2 – Consult with an Insurance Broker
A broker can help you navigate the complexities of different policies and find the best coverage for your needs.
#3 – Get Multiple Quotes Shop around to compare premiums and coverage options from various insurers.
Final Thoughts
Investing in flood and earthquake insurance may seem unnecessary, especially if it’s not required.
However, considering the potential costs of repairs and the peace of mind it offers, it can be an intelligent decision. Evaluate your risk, consult with professionals, and make an informed choice to protect your home and investment. Whether you’re living in a high-risk area or simply want to ensure you’re covered in an unexpected natural disaster, flood and earthquake insurance can be a valuable addition to your financial safety net.
Need to learn more about flood and earthquake insurance?
Our agents are ready to help, so contact us to learn how we can customize your insurance policies to meet your needs.
*Disclaimer: We offer content for informational purposes; Co-operative Insurance Companies may not provide all the services or products listed here. Please get in touch with your local agent to learn how we can help with your insurance needs.
Sources
Brown University. Connecticut earthquakes: Could New England face the ‘big one?’ https://news.brown.edu/articles/2015/02/quakes
Environmental Defense Fund. Why are floods hitting more places and people? https://www.edf.org/why-are-floods-hitting-more-places-and-people
Moneygeek. Guide to Hazard, Flood & Earthquake Insurance. https://www.moneygeek.com/insurance/hazard-fire-flood-earthquake/
Storymaps. The Great Vermont Flood of July 2023. https://storymaps.arcgis.com/stories/1734322dab92443386f0a04a9ddbe857
USGS. Earthquakes in New England. https://www.usgs.gov/publications/earthquakes-new-england