Dave Sather's Money Matters: Fending off floods
With the full impact of Hurricane Sandy fresh in our minds, the economic losses are estimated at $62 billion. However, that only tells part of the story as insured losses are estimated at $18 billion to $22 billion.
Why the difference in insured versus economic losses?
Property owners should realize that obtaining flood protection generally requires a separate policy, different from their regular homeowner's coverage.
These policies are offered through the government sponsored National Flood Insurance Program. This offers coverage up to $250,000 for a structure and $100,000 for personal belongings.
When we first moved into our house, we didn't have flood coverage. Why bother? My house was out of the floodplain. As I discussed this with Carol, she quickly said she'd rather spend the money on black shoes. Although I wasn't sure about the "black shoe asset allocation," I didn't want to buy something we didn't need. Additionally, the renovations on our "new" 70-year-old house were well above budget. I was grasping at every dollar possible.
My opinion changed as I realized that even if my house was not in the floodplain, it could still be the target of rising water. With the coast and numerous rivers and lakes close-by, many Texans are closer to flood peril than they may realize. Additionally, as development occurs often the natural drainage offered by land is often removed.
Given this, here are a few tips on protecting your assets from risk of flood:
1. Insure for flood, even if not in the flood plain. Even if you are not close to water, natural forces can cause water to back up in very unlikely locations.
2. Don't skimp on coverage limits. In the event of a broad ranging disaster, resources become scarce. Contractors and material prices will cost well above normal ranges. If you built your home for $110 per square foot, you may very well incur costs of $145 per square foot to repair. This is a function of simple supply and demand.
3. Focus on the big picture. Often, we try to keep insurance deductibles low, thinking we want someone else to pick up the tab. However, insurance is a math model in which the more risk you transfer the higher your premiums. For our money, we'd rather have higher, yet reasonable, deductibles in exchange for higher total coverage. I can replace things that cost a few thousand dollars, but not hundreds of thousands of dollars.
4. Seek additional coverage. With many homes costing well above the basic limits, seek out private flood insurance for homes worth more than $250,000.
5. Take pictures. Once a year, we recommend that our clients walk through their homes and video their assets. Not only is this great documentation, but it beats having to remember everything you had in every nook of your home after a disaster. Keep the pictures in a safe-deposit box.
6. Pick and choose your battles. I don't want to fight an insurance company since they have deeper pockets than I do. If I have rising water, I don't want to argue that damage was due to hurricane force winds while the insurance company contends it is from rising water. Get insurance to cover both. It may take time to sort it out, but at least the big issues should be covered.
7. If you do get into a fight over insurance or feel your claim is not being treated fairly, contact the insurance commissioner. In the past, we have contacted the Texas Insurance Commissioner on behalf of our clients to investigate unscrupulous or overly hardnosed insurance companies. Once a complaint is filed with the insurance commissioner, they are obligated to investigate. Knowing this, many insurance companies will soften their stance to avoid the commissioner coming for a visit.
Although I am sure Carol dearly misses that 50th pair of black shoes, I sleep better knowing our home is properly covered for a variety of perils.
And I'm sure she sleeps better knowing her shoes are covered, too.
Dave Sather is a Victoria certified financial planner and owner of Sather Financial Group. His column, Money Matters, publishes every other Wednesday.