With one percent odds of losing, why not take a chance? But with a 26 percent chance … maybe not.
Mortgage lenders will require any buyer of a home in a federally designated “special flood hazard area” – defined as expected to flood at least once in 100 years – to purchase flood insurance, since over the life of a 30 year mortgage, a one percent chance translates into a 26 percent risk.
When buyers become interested in a home, they should ask whether it’s in a hazard area, to know if they’ll be required to carry flood insurance, which could cost hundreds of dollars annually. Flood coverage is federally-back, but sold through conventional agents, and is also available to homeowners outside hazard zones. See floodsmart.gov.
Just as the once a century probability deceptively masks risk, even lower odds doesn’t mean a property won’t flood, says Howard Botts, chief scientist for CoreLogic. He works with the federal flood program and with insurance and mortgage firms to assess – down to ten by ten foot areas – risk for properties outside hazard zones.
Careful homebuyers and owners can garner greater insight of flood risk by talking to insurance agents and their municipal planning department, Botts says.
“Changing geography, development, and weather patterns mean that flood risk is not static,” adds Charles Symington of IIABA, an association for insurance agents.
“We look the elevations of properties relative to the 100 year zone,” Botts says.
“A lot of people are surprised,” he adds, that non-hazard areas have flooded in recent years.
For instance, even “a lot of coastal properties are outside of the zone as defined by [the government],” Botts says.
Even in Phoenix, which people associate with desert conditions, “part of it was once a marsh and filled.” In fact, of all the states, Arizona has the highest percentage of homes outside the hazard area but still at enough of a risk that home buyers should consider flood insurance, Botts says.
It’s important to know that if you have to take on flood insurance, there are other ways to drive down your costs.
“Without asking questions and shopping around, how can we really know if we have secured the most comprehensive coverage at the absolute rock bottom price?” asks Frank N. Darras, founding partner at DarrasLaw in Ontario, California, who recommends inquiring about discounts with your current carrier and comparing plans offered by competing insurers. Other ways to possibly earn a discount, according to Darras, include:
• Living close to a fire station or fire hydrant
• Recently replacing or upgrading your electrical system, plumbing, or roofing
• Installing deadbolt locks on all exterior doors and motion-detector security lights around the property’s perimeter
• Clearing away overgrown foliage from your property line and trimming trees
• Being retired and/or present at home more often to reduce the risk of burglary and vandalism.
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