A Complicated Question
There are regions where it’s extremely unlikely that you’ll ever need flood insurance. For example, if you live on the top of a mountain, barring some tectonic shift in the geological core of the earth, you’re probably never going to need flood insurance. But if you live anywhere around the ground of higher elevation than your home’s foundation, there could be an issue.
Even Wyoming gets flash floods on occasion. So does Phoenix, Arizona. And, while Arizona doesn’t have a lot of precipitation generally when the “rainy season” hits, flooding does occur. For the most part, the municipal design keeps properties safe, but there are always exceptions. There’s a reason FEMA has protections in place for those who have no insurance whatsoever.
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Sometimes a region has no legislation either for or against flood insurance. Sometimes disasters transpire which can ultimately be pinned on government oversight. Accordingly, when there’s a big enough disaster, you may have options even if you have no insurance. The question is: should you take such a risk?
Contending With The Worst-Case Scenario
Flood insurance will help your home retain value even should the worst-case scenario transpire. However, not all insurance companies are created equal. If you’re unfamiliar with the industry, there are some intrigues you might want to think about. For example investments.
Insurance companies make the majority of their profit through creatively investing their resources. As a hypothetical example, say you were a group like State Farm. Say you’ve got a million customers paying an average of $100 a month for one sort of insurance package or another. That’s $100 million a month coming in.
If that insurance company invests in a stock or other program that only produces a 2% return annually, then on the $1.2 billion collected every year, that Return On Investment (ROI) is $24 million dollars. That’s a pretty hefty chunk of change, but it’s not so cut-and-dry as that. There are, annually, going to be many instances where coverage costs must be paid out.
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The total collected sum is seldom if ever invested. The idea is to have enough momentum through clientele that a certain sum can be continuously invested, while the rest can be used for settlements or infrastructure. However, things like insurance fraud exist, and legitimate payouts are common. Accordingly, an insurance company must maintain its bottom line.
What Insurance Companies Will Do
Insurance groups often do their utmost to avoid paying settlements. Accordingly, the smaller the insurance company, the harder they’re going to fight so they don’t have to pay out what they legally owe to their clientele. They have a clear incentive not to pay. This means if you buy cheap flood insurance from some unknown company, getting a settlement may be difficult (source ISoldMyHouse.com)
In the link are additional points of information to help provide an idea of how you might best balance direct insurance and collateral protection. The truth is, though you may save money every month and fulfill localized legal requirements where you are cheap should an emergency come, the “coverage” you have may not be worth the paper it’s printed on.
So it does make sense to go through larger organizations or seek multi-faceted options. It makes sense to spend more. When you spend more, you have greater security in the insurance group you’re covered through. When you spend less, you’re essentially making a gamble that you won’t have an issue requiring some sort of settlement.
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If you’re going to be the most secure, you’ll want to be strategic. First, know the region where you own property or are looking to buy a property. If there isn’t a likelihood of flooding, you don’t have to worry as much—though you should still have a backup plan. Next, know what secondary options you have in addition to basic insurance. Third, consider fortification.
Making An Informed Decision
While FEMA does provide certain coverage for emergencies, you can’t totally depend on such an emergency fix. However, fortifying the vulnerable areas of your property against water damage can often represent a more secure solution than insurance or FEMA support. Even so, some natural disasters are just too big to anticipate.
Lastly, if you find yourself responsible for a high-risk property, selling it at a discount could save you more money than trying to refurbish it after a disaster. So in the end, there’s a lot to consider. Cheap flood insurance can be worth it, but it can also be dangerous. Consult with professionals and know your region for the greatest overall security.
