Why It is Foolish Not to Get
Flood Insurance
Although flood insurance is relatively inexpensive, most Americans don’t purchase protection.
• Only about one-quarter of the homes in areas most vulnerable are insured against flood loss, according to the Federal Insurance Administration (FIA). Yet in those areas, flooding is 26 times more likely to occur than a fire during the course of a typical 30-year mortgage.
• Even in areas where flooding is rare, most homes are still at some risk. According to the Federal Insurance Administration, 25 percent of all flood claims occur in area that have been classified as having low to moderate risk of flooding.
• Residents of about 20,000 communities with higher-than-average risk of flooding have been entitled by the government and the Federal Emergency Management Agency (FEMA) to purchase flood insurance at low cost through the National Flood Insurance Program (NFIP), a program FEMA oversees.
• Miles from a river. Jack and Ted, real estate partners, invested in a small shopping center in a town in West Virginia. The town had experienced destructive floods in the 1920s, but has had no significant floods since. Furthermore, the shopping center was located uphill from the river that ran through the center of town. There was no conceivable way that the river would rise high enough to flood the location even if it rained heavily for days on end. But then in 1999, it did rain for days on end as a hurricane passed through. Water coursed downhill from above the location, swamping the shopping center and damaging the stores and their inventories. Most of the merchants had their own insurance policies that covered their losses. A sporting goods store however, had not taken out flood insurance, and the owners threatened to take Jack and Ted to court. Suddenly they had a new and unexpected problem on their hands, one that threatened to damage the value of their property, make it harder to find tenants, and inflate their insurance costs at the same time.
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