Does your financial plan include flood insurance? If you live in a coastal area or one prone to heavy rain storms (which may be most of us in the not-to-distant future), you probably should.
As recent photos from Hurricanes Ian and Nicole show, Mother Nature can turn a retirement paradise into a nightmare. Even a category 1 hurricane can do costly damage to your home, and the wide path of destruction wrought by these storms is a reminder that flooding is not a danger just for the coasts. The Sheriff’s Office for Orange County, home of landlocked Orlando, tweeted multiple photos of entire neighborhoods under water after Hurricane Ian passed through in September.
“Spend some time working with an [insurance] agent to ensure the policies that you have cover everything you need them to,” says David Peters, an advisor with CFO Capital Management. “And don’t forget your emergency savings. You want it there when you need it.”
Of course, it’s not just Florida that is prone to tropical force winds and flooding. Hurricanes have devastated Houston, Puerto Rico, and other locations in recent years. But because Florida’s population has boomed, millions of new residents of the sunshine state are now in the path of hurricanes. From 2010 to 2020, Florida’s population grew by roughly 3 million people to 21.5 million, according to Census Bureau data. Climate change may make hurricanes more frequent and powerful in the years to come.
Just one inch of flood water in your home can cause $25,000 worth of damage, according to FEMA, which manages the federal government’s National Flood Insurance Program. Under the program, residential policy holders can be covered for up to $250,000 for their home and $100,000 for its contents. The average policy cost $700 in 2019, according to FEMA. Homeowners who live in high-risk flood areas may be required to have flood insurance to secure a mortgage.
If you have more risk than that, you might want to look at a private policy for additional protection, says Josh Strange, founder of Good Life Financial Advisors of NOVA. “With retirees, they have to ask if X happens, can I afford it? Or is it a minimal cost to insure?” And it’s better to have that discussion before disaster strikes.
Florida residents in particular may want to carefully evaluate their options regarding home insurance policies given soaring premiums. And people moving to the state from elsewhere in the country should be prepared for higher homeowners insurance bills and costlier real estate. The average Florida homeowners insurance policy premium is projected to be approximately $4,200 for 2022. That’s nearly three times the U.S. average of $1,500, according to data from the Insurance Information Institute, a research organization. Residents in coastal counties may pay more.
“I’ve had clients who’ve moved to Florida and they are typically surprised that it’s a lot more expensive,” says Kyle Newell, a financial advisor in Winter Garden, Florida. “That’s mainly because of the hurricane risk.”
Newell suggests his clients consider getting flood insurance if they are eligible as well as review their insurance coverage overall. “If you’re in a coastal city in Florida, you’re almost guaranteed that you’ll have a hurricane come through at some point,” Newell says. “A client who lives in Cape Canaveral told me he once had a hard rain and ended up with 2 feet of water in his house. It can ruin everything. Furniture. Cabinets.”
Homeowners insurance policies may have very little or no coverage for some of the high value items in your home, such as jewelry and artwork. Peters suggests clients look into getting an inland marine policy. “It’s an extension of coverage over and above what you would have under a typical homeowners policy,” says Peters, who prior to his current role was chief financial officer of Compare.com, a price comparison website for auto insurance.
More Americans are working from home now, and protecting your ability to continue doing so may be something to bear in mind if you live in a region where natural disasters are a frequent occurrence. Between 2019 and 2021, the number of people primarily working from home tripled from 9 million to 27 million, according to data from the Census Bureau.
“It’s one thing to be able to rebuild, but another thing if you work out of your house,” says Charles B. Sachs, chief investment officer for Miami-based wealth manager Kaufman Rossin.
Sachs, a Florida native, notes that multiple factors, from labor shortages to supply chain issues, can delay homeowners’ plans to rebuild after a devastating storm. It also underscores the importance of keeping an emergency fund.
“What if you’re out of a home for a year? The closest office might be a Starbucks down the street. That’s good for a few hours, but not weeks or months,” he says.
Newell, also a Florida native, suggests clients consider getting a home equity line of credit in case they need it for emergency repairs or other needs. “You want that in place before the storm hits so you don’t have to drain your emergency fund,” Newell says. He adds that power outages are a serious risk and a major inconvenience, especially if you work from home. “You can be without power for several days, even weeks,” he says. “Houses can be built well [to withstand a storm], but losing power may mean you won’t have cold food or A/C.”
Homeowners who have paid off their mortgage or don’t have one may be tempted to forego insurance to save on the costs, but advisors caution they think twice before doing so.
“Replacing a house can be extremely costly and it can be detrimental to your financial plan to either take out a couple hundred thousand dollars or get a new mortgage,” Newell says. “You technically could drop it but do you want to take on that risk?”
This article was originally published in Barron’s on November 11, 2022, and written by Andrew Welsch.
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