Real Estate Owners Dreams are Washed Away
We’ve seen the pictures of devastation heard the stories of tragedy and were inspired by the relief concert. There’s another story not jumping off the newsstands that’s just as incredible. Thousands of real estate owners have been denied insurance coverage for “flood loss” in the wake of Hurricane Sandy despite years of on-time premium payments. It doesn’t seem fair. No wonder people hate insurance companies!
The denial of coverage to real estate owners is not limited to “Sandy” victims. Throughout history owners of real estate have been denied coverage for mudflows, earth movement, volcano eruptions and mold. Standard homeowner policies don’t cover these events.
The question begs – how do real estate owners protect themselves?
Coverage for Chocolate Shakes Not Chocolate Cake
There are policies that cover flooding and mudflows such as the National Flood Act Program (NFAP). Mudflows are covered if the “flow” is mostly liquid and not a lot of trees and earth – commonly known as a “chocolate shake but not a chocolate cake.”
Phew! There’s a simple answer. Buy extra coverage, right? Not exactly. Don’t go out and buy broad liability coverage just yet. You need to weigh the benefits of extended protection versus the high cost to maintain the policy year round.
There’s a common sense element that comes into play here as well. Don’t buy coverage you don’t need. Those living on top of a mountain don’t need flood coverage for instance.
You may be able to avoid buying extended coverage if the law is on your side despite living in a danger zone. If your “upstream” neighbor caused the financial loss to your real estate you may be able to recover from your neighbor.
It’s also important to remember that the federal government provides loans to survivors of zones declared “disaster areas.” Such loans are available from the small business administration (SBA) (even if you’re not a business) and the Federal Housing Administration (FHA).
You may be tempted to use home equity line credit cards (commonly referred to as HELOC’s) to cover your repairs. Don’t. The rates on HELOC’s are typically unfavorable and the consequence for default (foreclosure) is drastic.