The Real Cost of Being Uninsured – Why Flood Insurance is Worth It

Homeowners insurance covers some water damage, but not all of it.

Many homes in high-risk flood zones have government-backed mortgages that require them to get coverage. But even in low-risk areas, flooding can happen. How much is flood insurance in Florida? In Florida, flood insurance typically costs $628 annually. The amount of flood-prone land in the state and the hazards associated with specific properties determine this cost. Rates may differ according to your state and nation, but they are often higher in flood zones with a moderate or high risk of damage.

Property Damage

Homeowners’ and renters’ policies typically don’t cover flood damage, which can occur when heavy rainfall or hurricane storm surges combine with rising bodies of water. Without separate flood insurance, homeowners could face tens of thousands in repair and replacement costs, even if just an inch or two of water enters their house. Flood insurance is a low-cost way to protect your home and belongings, and it’s worth the peace of mind it offers.

The National Flood Insurance Program (NFIP) sells building and content coverage. Building coverage reimburses you for repairing or rebuilding your home up to the policy limits and includes a deductible. Contents coverage reimburses you for replacing items like furniture, appliances, and wall-to-wall carpeting that are beyond salvageable or no longer functional due to flooding. The NFIP adjusts the value of building and contents claims on an actual cash value (ACV) basis. This translates to a lower payout in the event of a loss since the item’s replacement value takes into account physical depreciation.

The NFIP also offers a Coastal Barrier Resources System or Other Protected Area policy, which covers the cost of elevating or moving your home if a flood severely damages it. You’ll need to contact the NFIP for specific details about this coverage. If you live in a high-risk flood zone, you’ll probably be required to have a flood insurance policy by your mortgage lender. However, buying a flood policy in areas that aren’t prone to flooding is only sometimes necessary.

Medical Expenses

In addition to losing household items, flooding can damage your health. Although some flood insurance policies offer medical coverage, more is needed to pay for all your losses. Moreover, the cost of hospital care is much higher than that of car accidents or house fires. For example, an uninsured person’s annual risk of being hospitalized is 50 times greater than the risk that they will be involved in a car accident and ten times greater than the chance of experiencing a house fire.

People without health insurance have out-of-pocket medical expenses that consume a substantial portion of their family income. The fact that the uninsured have lower family incomes makes this expense more likely.

The uninsured also pay for charity care and bad debt. Because hospitals have different billing practices, it isn’t easy to estimate exactly how much is paid in this manner. Nevertheless, studies indicate that the total value of uncompensated care is about $23.6 billion per year.

Local hospitals bear the brunt of this burden. This is especially true when the local unemployment rate is high, as it is in areas where many people have lost their public insurance coverage. This is because public funding for the uninsured flows through state and local taxes rather than through insurance-based payments to the federal government.

Legal Expenses

Flooding can cause costly damage to property and personal possessions; standard homeowners’ insurance policies do not cover it. Flooding is the most common and expensive natural disaster in the United States. With climate change causing hurricanes, storms, and torrential rains to become more frequent, many Americans are at risk of flooding from rising waters.

Homeowners with mortgages in high-risk flood zones often need to purchase a federally-backed policy through the National Flood Insurance Program (NFIP) to qualify for a loan. But even those living in moderate-risk zones should consider purchasing a separate flood insurance policy to protect their property from the financial strain of flood-related damages and losses.

While the NFIP is a great option for many people, private insurance companies also offer coverage that is sometimes cheaper than what’s available through the government-backed program—a flood insurance policy costs between $800 and $1,200 per year. However, the cost can vary depending on a location’s flood risk, deductible options, and whether you purchase separate policies to cover contents and the building itself.

Many people don’t buy a flood insurance policy because they assume the government will step in to help them in a disaster. This is true, and the government does provide relief in the form of loans, but these must be paid back over time. Furthermore, people without insurance typically have far fewer financial assets than those insured.

Lost Income

Floods cause significant losses to businesses and the economy. In addition, the damage can prevent people from accessing their homes for weeks or months, meaning they have to pay rent at some other place—usually less expensive. This can add up, especially for families with many children or low incomes, making it difficult to keep up with mortgage payments or other financial obligations.

Furthermore, the loss of income can be compounded by the fact that flooding tends to hit poor communities hardest. Research shows that households with lower levels of wealth are more likely to live in areas exposed to flood risk and that those who live on the lowest incomes tend to be more vulnerable when absorbing the impacts of flood events.

Rentschler and colleagues find that over 780 million people worldwide live on incomes below the poverty line and are at high risk of flood exposure. They estimate that if these households were to purchase insurance and take other mitigation actions, their total economic losses could be reduced by half.

However, those in the lowest income brackets often have little savings and can’t afford to buy insurance. Further, they don’t qualify for federal disaster assistance unless their area is declared a major disaster, and this type of aid is typically provided in the form of loans that must be repaid—often with interest.