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Harvey should remind renters that they, too, may need flood insurance

New law may affect Harvey claims

By Craig Casazza/ValuePenguin

Concerns about the property damage from Hurricane Harvey has mostly focused on the devastating physical damage to single-family homes, which will only mount as the cost of repairing those homes is tallied. Yet the experience of Jamie Riley of Rockport, Texas, reveals how many of those who rent their homes should be no less vigilant in protecting themselves against hurricanes and major storms. Ms. Riley, who rented her home, said she lost all her belongings, the New York Times reports, and launched a GoFundMe page to help get her and her husband back on their feet financially.

True, not every renter is at risk of a flood. If your apartment is on the tenth floor of a high-rise, your flood risk is at best negligible, even in a high-risk area. But reported the flood-insurance gap between homeowners and renters is unhealthily wide. While renters comprise anywhere from a fifth to almost half of residents in most U.S. communities, only about 2 percent of the 5 million flood insurance policies in force across the country are for a rental property. That suggests renters are far less likely than homeowners to insure themselves against the risk of flooding.

Here's why renters in high-risk hurricane areas should be fully insured, including considering flood insurance.

Renters get flooded, too

History suggests renters are at greater risk of flooding than might be assumed. According to a ValuePenguin analysis, there are 1,274 counties in the U.S. in which at least 1 in 4 residents rent their homes. In about a quarter of those counties, floods have caused at least $5 million in property damages over the past 20 years—reflecting modest but not insubstantial losses. However, more than 5 percent of counties—78 in all—have suffered more than $50 million in damage over the years, and in more than one in five of those, the losses totaled $500 million or more.

Together, those hardest-hit counties are home to about 3 to 4 million renters. They include ones Orleans County, LA, which alone suffered a whopping $18 billion in flood damage since 1997, with much of that total attributed to Hurricane Katrina in 2005.

Flood maps can be revealing

Recent experience can, of course, help you to gauge whether to buy flood insurance—as can the elevation of your home, as we mentioned earlier. But another useful source, because it draws on historical and geographic data, is FEMA.

The federal agency has created 'flood maps' for all communities. The maps will divide your community into "risk" categories. Your home could be in a Special Flood Hazard Area (SFHA), signifying there's at least a 1 percent chance for a flood every year, or you can be in a more moderate zone, where the risk is deemed to be lower than that mark.

While the danger is more apparent, and case to buy insurance more compelling, for homes located in a SFHA, a quarter of all flood claims come from moderate zones. Don't, then, rule out the possibility of buying a flood policy should you live in such a zone. That's particularly true because FEMA is wrestling with keeping its flood maps current, and the updating of some of these documents to reflect recent changes in the climate and water levels have fallen behind.

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Regular renters' insurance doesn't cover flooding

A little less than half—45 percent—of renters have any insurance at all for damage to their belongings. And basic renters' coverage protects against some perils from a storm or hurricane, including damage from high winds and heavy rain.

However, as with homeowners' insurance, these policies typically omit coverage for water that contacts the ground before it enters your home. As in, if the river overflows its banks, floods your town, and immerses your home, you'll be out of pocket for replacing your ruined kitchen, warped furniture, soggy wardrobe, and more.

Those losses can add up to a surprising, even shocking, figure. Your coverage limits should reflect your renters insurance limits. If you do not have renters insurance, you can calculate your limits by taking an inventory of all the things you own and assigning a rough value to them. Most renters will probably need between $10,000 and $50,000 worth of coverage.

Flood coverage is cheaper for renters than owners

Flood insurance for renters is cheaper than for homeowners because renters do not need to worry about damage to the the structure of the home, which is often the priciest part of a flood insurance.

That said, adding flood coverage to your renters' insurance could easily double your premiums, even if you live in a moderate zone. (For information, the typical renters' insurance premium, without flood coverage, is approximately $160 a year.) However, you may even qualify for a preferred rate in that zone, meaning you could pay less than that. 

If you live in a high-risk area, the additional cost of flood coverage can be far higher—many times the cost of your basic coverage, even as high as $1,000 or so.

The feds underwrite flood insurance

Flood insurance is underwritten by the National Flood Insurance Program, a federal agency, but it's actually sold by scores of insurance companies. When you buy a policy through your insurance company, it then serves as your liaison between you and the NFIP. You can also get a flood insurance quote from a company even if you do not have another policy with them. If your insurance company does not have a partnership with the NFIP, you can also opt to go directly to them. For more details on buying flood insurance, this guide goes through the full process.

Once you apply and are given a policy, you typically have to wait 30 days for it to kick in. If you're worried about floods this hurricane season, acting now will ensure your policy is active for the riskiest part of the season.

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