Coastal Property Owner? FEMA Might Not Bail You Out

Data shows a significant portion of homeowners may be banking on federal flood relief they'll never receive.
Floodwater surrounds homes

The 2017 hurricane season was the most expensive in U.S. history, causing more than $200 billion in damage to Puerto Rico and states across the southeast.

These losses, combined with a year of brutal wildfires in California and volcanic activity in Hawaii, have stressed the Federal Emergency Management Agency (FEMA) to the point of breaking. The agency issued a warning to Florida leaders last month, telling them not to count on FEMA for timely assistance if a disaster should wipe out basic commodities in their districts.

Whether individual property owners are taking this warning to heart is unclear. Just 19% of properties in Florida were covered by the National Flood Insurance Program (NFIP) in 2017, according to the Insurance Information Institute (III). This far exceeds neighboring Georgia, where only 2% of properties are insured by the federal program, or the 3% and 9% in North Carolina and South Carolina, respectively. However, the extreme losses Florida and other southern states have experienced in recent years indicate that the need for individual flood insurance should be taken seriously.

Additional properties could be covered by private companies—especially in Florida, where the private flood insurance industry is taking root. However, some homeowners may be relying on the disaster relief FEMA offers in lieu of an individual flood insurance policy. This is a bad idea.

"The maximum direct assistance FEMA will pay is $33,000, which sounds like a lot of money, but not if you have a significant flooding event," said Michael Barry of the III.

Even just a few inches of flooding can cause extensive damage to your home, and it's notoriously expensive to repair. The average NFIP flood claim in 2016 was $62,247, according to the institute—double the amount FEMA will grant to a single household. "And while the maximum claim amount is $33,000," said Barry, "the average payout is closer to $10,000."

Worse, property damage caused by regional flooding, is excluded from most standard homeowners insurance policies. Coastal property owners can expect up to 14 named storms this year—including six hurricanes—according to Philip Klotzbach of Colorado State University. They'd be wise to purchase a flood insurance policy now before the season's first critical storms hit land.

Daniel Caughill

Daniel is a Staff Writer at ValuePenguin, covering insurance, retirement and other personal finance topics. He previously wrote about compliance and best practices for K-12 school districts at Frontline Education.

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