Should I buy flood insurance?

Q:

My homeowners insurance doesn't have flood protection. Should I make up for it by buying flood insurance?

A:

Whether you need flood insurance or not depends on a few factors. It mostly has to do with the level of risk you're comfortable with taking on, the cost of the coverage, and whether your home or business is located in an area that is highly susceptible to flooding. Clearly, if you're living in a dry area, far away from coastlines or bodies of water, you probably would not need flood insurance.

Because flood, as a standalone peril, is typically excluded from most homeowners and commercial policies, it will need to be added on separately. The cost of such a policy varies based on risk factors and the value of the property you wish to insure.

That said, given the added costs involved, when would it be in your best interest to get flood insurance? There are two situations in which it is worth purchasing:

  1. Your lender requires it as a condition for getting the loan. If you're living in an area that is at high risk of flood, such as a flood plain, your mortgagee might require that you purchase flood insurance in order to protect their collateral (your house).
  2. You are not comfortable with the risk. This might be the case if you live in a high value home or have expensive items in the basement or other areas susceptible to flood damage. If you're uncomfortable or unable to pay a large sum out of pocket for repairs or to replace valuables, then it makes sense to purchase flood insurance.

Generally speaking, adding optional insurance coverage to your policy is like any other financial decision. It is a personal assessment that factors in costs, benefits, and risks. Not everyone will opt for flood insurance but, sometimes, the peace of mind is worth paying the extra premium.

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View all questions from Jacques Wong.

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About the Author: (Director of Education at PNC Learning)

Jacques grew up around the insurance industry and began actively participating in 2013. Since then, he has gotten a Level 2 license, won Insurance Council of BC awards in 2015 and 2020 for academic excellence in the insurance licensing courses. He educates insurance professionals through PNC Learning and as a Thought Leader at ReFrame Insurance.

In his day job as an insurance broker, he helps businesses with creative risk management solutions and strategic advice when it comes to insurance.

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