December 12, 2016
“Earthquake Insurance is too expensive” “Why would I need Flood Insurance?” Wealthy Earthquake and Flood Insurance.
Truly Affluent homeowners, that is, people that both own Luxury Property AND have paid them down, need to consider insuring their homes in a different manner.
Frequent Readers of my blog posts and articles will know that I frequently argue for wealthy or affluent consumers to think of insurance differently. Unlike middle class folks, Affluent homeowners need to protect themselves in different and enhanced ways. Think in terms of more protection from liability risk. Also think in terms of Catastrophic Property Losses. As the title of the article might indicate, I am going to review the necessary enhanced property coverages for Affluent Homeowners to consider. By Catastrophic loss, I mean a property loss that is likely to completely wipe our your home. When you have money in the bank and when you have significantly paid down your mortgage, a large uncovered catastrophic loss will upend all of your financial plans. Yes, you may be able to afford to replace the home, but will you now still be able to retire?
Unfortunately for the industry many of the insurance agents out there are not having the necessary discussions with their clients considering these types of property losses. Please allow me to make two different arguments for two vastly different risks that you may face.
You are probably already covered from a large wild fire, but what about an earthquake? Earthquake Insurance is a catastrophic peril insurance that seeks to make you whole in the event that you home is torn to shreds by Earth Movement. Unlike Flood Insurance, Earthquake Insurance typically has a very large deductible. The limit of the policy does not pay anything until after the large deductible is met. Therefore earthquake insurance is not likely to pay small claims. Earthquake deductibles typically come in 10%, 15%, 20%, and now even a 25% options. On a One Million Dollar home those numbers are: $100,000, $150,000, $200,000, and $250,000. You can imagine the difficulty getting someone to plunk down $1500 dollars to pay for an insurance policy that does not put out one dime until the two hundred and fifty thousandth and one dollar?
If you find yourself reading my post and nodding your head in agreement. Then, why do so many affluent California home owners not see the hidden danger? The simple answer is that there is a confluence between the individuals themselves and the insurance agents. Most people tend to like to focus on investments. Few like to think about risk. The wealthy though, maybe even more so. When is the last time you met a young entrepreneur who became wealthy by being safe?
Unlike Flood Insurance, the Earthquake market is more fluid. There is competition in the Earthquake market. That means that more carriers participate. The solution for wealthy owners of homes is to simply reach out to an independent insurance broker that writes earthquake policies with a variety of carriers. Earthquake Insurance is a bit more complicated in many regards. There are certain things that you can either choose to cover or not. Some carriers have lower limits of coverage. Others have higher limits of coverage.
Flood Insurance is very different from Earthquake Insurance. Why? Well, its pretty complicated for one. Trying not to get into too much detail, lets just say that Flood Insurance is mostly run by the Federal Government. Flood Insurance can often be required by Lenders. Federal Flood Insurance carriers a maximum amount of only $250,000. Why do I say only? Because for affluent homeowners in the US, that really is not a whole lot of insurance coverage.
There are two scenarios and reasons why I make the flood argument for the wealthy.
I find that wealthy clients of mine are less likely to carry mortgages. In some situations that means that a client will not have been forced to keep flood insurance when they live and reside in a special hazard flood zone. These individuals consider themselves “Self Insuring.” Or worse, they are just unknowledgeable about the dangers. Either way, if your home is in a Special Hazard Flood Zone, please do not think that turning a blind eye to a known future event will prevent it from happening. There are options to procure lower flood insurance rates.
The second scenario that often crops up, is the client lives just beyond the special hazard flood zone. A stone’s throw. These clients often will consider themselves smart for having purchased a home just beyond the limits and thus can save on not having to procure flood insurance. Although an original wise first decision was made, the second natural follow through decision may have been missed. Federal Flood Insurance for primary homes located in a Zone X, with no previous flood losses is totally dirt cheap. Clients of mine can often purchase it sometimes between 12% to 17% of the cost of the same coverage just a few feet away. Just because the federal flood maps list your home just over the line does not mean that the rushing water will exactly follow that line. My advisement is pretty consistent. If you can throw a rock from your home to a high risk zone, buy the insurance. Its backed by the government. In a manner of thinking, it is subsidized insurance.
Floods happen. They happen all the time. According to the Floodsmart website, 20% of federal flood claims happen in lower risk zones. Yet wealthy clients of mine don’t want to spend $450. The other 80% of the claims probably happen in the high risk zones. Yes some clients don’t need flood insurance because “they don’t have a mortgage.” My opinion is to buy the Flood Insurance. Needing encouragement, google Johnstown flood or the great California megaflood of 1862. Or of course just click on those links. If you are in a low hazard flood zone, get the Federal Flood Insurance up the max of $250,000. If you are in a high hazard flood zone, consider both the Federal Flood policy and an Excess policy on top of that. This can provide you with complete flood insurance for your entire home.
To Begin with their home is covered by a first rate affluent insurance carrier. The autos are likely with that same carrier and both of these policies are topped off by a liberal umbrella policy. They have weighed the merits of a competitive earthquake policy and have purchased a federally backed flood insurance plan. Yes there are still some calamities that can still bite them, such as a landslides or a war. But a very large percentage of the known risks are now covered.
Reading about insurance online is just the start. Please do not read our posts and articles and think you are done. Insurance is more complicated than almost everyone thinks. Reach our to your licensed insurance agent for assistance. Please read our disclosures. Thank you for reading Wealthy Earthquake Flood Insurance.
The details of both flood and earthquake insurance were not discussed in this article. There are numerous exclusions and underwriting criteria that must be met. Coverage forms can and will change at times. At all times speak with a licensed, bonded, and insured insurance agent or broker in your state or jurisdiction.
Marindependent is an independent insurance agency / brokerage based in Marin County. We work for our clients and delve into much greater detail with our clients than many insurance agencies. Marindependent is regulated by the California Department of Insurance. California License Number 0K10734. Thank you for reading about Earthquake and Flood Insurance.
Scott lives and works in Marin County with his two children, wife, and dog. His house is protected with both Earthquake and Flood Insurance.