Recent Flooding Reminds Us to Manage Risk and Plan for Safety
By: Lloyd D Lowe Sr, Chief Investment Officer of LD Lowe Wealth Advisory
This summer, we watched as the fourth-largest city in the United States was all but drowned in the wrath of Hurricane Harvey. The waters have receded, but the damage they left behind will take years to undo. As many as a million cars are ruined, 100,000 homes are flooded and estimated economic costs are running into the tens of billions of dollars.
Compounding these problems on an individual, case-by-case basis is the fact that many of Harvey’s victims don’t have flood insurance. In fact, insurance experts estimate as many as 80 percent of the people affected by Harvey don’t have the insurance to compensate for their losses. Even with the floodwaters gone, they face an entirely new catastrophe – those with flooded homes and waterlogged furniture will have to dig deep into their savings or take on substantial debt to fix their homes. Many may be forced to sell – if they can find a buyer – and leave their communities behind. There is some potential help coming in the form of a tax relief bill just passed by Congress, which will, among other things, allow for penalty-free 401(k) withdrawals to pay for storm-related expenses, but the sheer scope of expenses faced by hurricane victims remains unchanged.
Flooding is the No. 1 natural disaster in the United States, according to the Federal Emergency Management Agency (FEMA), and flood-related insurance claims top about $2 billion every year. Yet still, as Harvey demonstrated, many people who need flood insurance don’t have it.
There are three ways to prepare for misfortune:
You can avoid it – for example, by looking into the mirror when you’re backing your car out of a parking spot.
You can self-pay for the unforeseeable, but minor, incidents of life.
Or you can transfer the risk, which is exactly what insurance is – to transfer the risk of something you can’t self-pay or avoid. Paying to replace everything you own, as well as your home, is beyond the financial means of most. This makes insurance key to sound financial management.
When it comes to flooding, insurance is usually available through private carriers or through the government-sponsored National Flood Insurance Program. Most private flood insurance is for commercial properties, but Congress recently relaxed the insurance rules, allowing homeowners with mortgages backed by the Federal Housing Authority to choose private flood insurance instead of the federal program, if they desire. Traditionally, government-sponsored insurance is less expensive than private, so it remains to be see how this will play out in the marketplace.
It’s vital to have the right amount of insurance for your home and possessions. Check sites like Trulia to find what homes in your area are selling for by square foot. Compare that information with what’s publicly available on tax rolls and determine the replacement value for your home. Also, double-check your insurance policy to be sure it covers everything you need covered.
The best kind of insurance is the kind you never use, and the best way to deal with floods is not to live in a place susceptible to flooding. When you’re looking for a new home, check for flooding issues, in particular, the flood zoning maps available at www.fema.gov. Remind yourself to go back and check again every year or two, as flooding zones can change. If the area you’re in experiences a dramatic increase in rainfall year over year, your potential for flooding is also increasing. Check average rainfall over the last 5-year, 10-year and 15-year periods for your area.
If you’re living in an area susceptible to flooding, there are still some steps you can take to minimize your risk. The first, as mentioned above, is to carry sufficient flood insurance. But you can also take more active steps. Keep an eye on nearby waterways for any build-up of dead trees, trash or even beaver activity and ask the city to remove them. In a heavy storm, these things can form impromptu dams and create a localized flooding event. Obviously, damage to your property is a secondary consideration to your own safety. If you live in a flooding-prone area, you should be prepared if a flood does come. You should know the route to get to higher ground and away from the water, as well as the location of the nearest shelter. Everyone in your family should know to meet at this agreed upon shelter area.
There’s nothing you can do to stop a storm like Harvey, Irma or Maria if you’re in its path. But with proper planning, it’s possible to weather the worst of it without losing everything.
LD Lowe Wealth Advisory is a SEC Registered Investment Advisor. Registration does not imply any certain level of skill or training. LD Lowe encourages investors to review the training, tenure and track record of a potential advisor.