Excess Flood Insurance: Do we need it?

We live between two rivers, in a coastal area that annually is threatened with hurricanes. So having basic flood insurance is a no brainer. After all, if your house is flooded, your homeowner’s policy isn’t worth a lick. Your homeowner’s policy is terrific if there’s damage
Severe weather, including this water spout that developed in the Charleston harbor on Saturday (Daniel Island is in the backround), as well as thunderstorms, like the one that hit this palm tree on Daniel Island, are not uncommon for Daniel Island. Add to that the threat of hurricanes and one wonders, “Should we seriously consider purchasing excess flood insurance?”
from wind, or destruction by fire. But flooding? That’s where FEMA-backed flood insurance policies kick in, and that’s why mortgage companies require area residents to take out separate flood insurance policies.

But FEMA’s flood policies max out at $250,000 for structures and $100,000 for contents (legislative sidenote: bills are pending in Congress to raise those limits). So what happens if a flood takes out the entire house? Do we, as residents, need to seriously explore "excess" flood insurance?



Now I’m not into fear mongering, and I’d heartily recommend that you don’t run off and immediately purchase excess flood insurance. After all, what are the chances that:

1. They’ll be a flood that overtakes Daniel Island and surrounding areas; and

2. That the flooding will be the central cause of the damage; and

3. That the damage will exceed the FEMA limits?

After all, wind-induced damage (which IS covered in your basic homeowner’s policy) is often the chief culprit in major storms. But the topic bears study. So we began an exploration, first asking five insurance agents, plus the folks at FEMA, one simple question: what are the chances that flood damage will exceed FEMA’s $250,000 limit?

Surprisingly, no one has been able to deliver the definitive analysis (we promise to keep asking). It’s safe to assume that insurance companies which offer "excess flood" (among them, Lloyds of London, Lexington, Bankers Trust and PURE) are relying on some form of data. After all, how would they set their rates from year to year? So we’ll keep searching for the holy cost/benefit grail.

In the meantime, we thought it instructive to pose a second question: how many residents typically take out policies for excess flood insurance? You’ll be shocked by the answers.

Few Seek Bids, Even Fewer Take Policies


Rick Iriart, with State Farm, whose company doesn’t even offer excess flood insurance, said that of the roughly 1,500 homeowners policies that he’s written, only 1 percent (or about 15) even requested a quote for excess flood, and of that group, Iriart recalled, roughly three decided to take it. Two other agents – Hill Shaw of Atlantic Shield Insurance Group and Danny Haberman of Palmetto Insurance, agreed that Iriart’s anecdotal numbers matched their experience. Few homeowners request a bid on excess flood, and only a fraction of those take the policy. Why?

From all appearances, it’s strictly about money. Excess flood is expensive, and quite volatile, year to year. Shaw said that, recently, he bound an excess flood policy for $1,450,000. The price tag? $4,000/year (equivalent to $2.76/1000). Another report found an excess flood insurance policy for $190,000 at a cost of $380/year (or $2/1000). So rates vary, and the factors are too numerous to name, but include: the type of flood zone that the house is located in, type of structure, type of foundation, current elevation and age of construction.

What to do?

Certainly, it’s worth a call to your insurance agent, to at least price out "excess flood." In that way, you’ll know the options. And if you have an extra moment, it’s probably worth a second, or third, quote, to compare. (On a personal note, for our underlying homeowner’s policy, we were quoted two different rates by the same company; so rates do vary). And keep in mind that you can’t simply buy excess flood when a hurricane approaches – there’s a 30-day waiting period (naturally).

Atlantic Shield’s Shaw said that if your home is worth $650,000 or less, "you’re probably not an excess flood customer." And Allstate’s Iriart points out that he knows of no cases in the Charleston area, in recent years, where excess flood has kicked in. Said Iriart, "Obviously homes right on the water, where they potentially get completely washed off their pilings in a storm, would certainly need the excess, assuming $250,000 would not rebuild it."

He added, "I am sure there were numerous incidents . . . during Katrina, since a number of homes were washed away from the slab, and I’m sure some were more than $250,000 to rebuild – although a major issue down there was that many didn’t even have the basic flood coverage. There was one case that was relatively famous there, where Sen. Trent Lott’s home was damaged by flood, and only had the $250,000, but needed upwards of $1M."

So, it’s worth considering. And here are some questions to ask:

1. Contents loss – does your basic flood insurance policy cover contents? And if you do have contents coverage through FEMA, up to $100,000, will an excess flood policy cover additional content damage?

2. Loss of use/living expenses – which of your existing policies, if any, cover loss of use and living expenses? (in other words, if there’s damage to the house, and you have to move out for a period of time, does one of your policies pick up those costs?);

3. Garage – which of your existing policies, if any, cover flood damage to the garage?

4. Insurance carrier – is your insurance carrier "admitted or non-admitted"? ("Admitted" means that the State of South Carolina will guarantee the policy if your insurance carrier goes belly-up); and

5. Waiting period – what’s the waiting period for excess policy insurance?