The Cost of the Colorado Flood to Home Owners

The people affected by the recent Colorado floods have begun the process of rebuilding their lives as the water recedes from their homes, farms, and businesses.  Many were stunned to learn their losses aren’t covered by their home owner’s policy and are wrestling with the financial implications of that news.  Most people don’t know that no home insurance policy cover’s flood damage, only a flood policy does that.

Those whose homes are in flood plains most likely have flood coverage; their mortgage company requires it and will go to the lengths of placing a forced place flood policy to cover the home if the home owner did not.  The opposite is also true; most home owners whose homes are not located in a flood plain don’t have flood insurance.  The decision they are faced with is how to pay for the cleanup and repairs.

Boulder and Larimer counties were hit the hardest by the flooding in Colorado.  Over 7,200 homes and business were damaged or destroyed.  Less than 6,000 business and home owners carry flood insurance.  Colorado has 2.2 million housing units State wide, however only about 22,000 home owners have flood insurance.  1% of all Colorado home owners have a flood policy and that percentage is pretty standard regardless whatever geographic area is compared.

No figures have been released yet on the average flood damage cost per home owner, but the National Flood Insurance Program does provide an interesting estimating tool on their web site.  The below figures are based on a 2,000 square foot home.

Even a couple of inches of water in a home will cause tens of thousands of dollars in damage to the home and the owner’s personal property.

The average cost for a flood policy is about $650 a year.  Most people whose homes are not in a flood plain would rather take the risk they won’t be impacted by a flood.  While most of the time assuming that risk is not a bad bet, there are thousands of people in Boulder and Larimer counties who wish they’d made a different decision.  These survivors may qualify for a low interest government loan to repair and rebuild their homes, but it will be a loan that must be repaid.

The Colorado flood was caused by a 1,000 year rain event.  As I stated in last week’s post, that doesn’t mean it only happens once every 1,000 years, it means there’s a 0.1% likelihood of this happening in any given year.  The opposite is also true, the likelihood of this not happening in any given year, is 99.9%.  Should you carry a flood policy for an event that has a 0.1% of occurring?  That is a decision that each person must evaluate and determine for themselves.  My recommendation is:

• If your home or business is within 1,000 feet of a stream, creek, river, lake or drainage area, strongly consider a flood policy.
• If you’re home or business is located at a distance greater than 1,000 feet from one of these water hazards, compare the cost of a flood policy to the above damage estimates and determine what level of risk you’re willing to live with.

In either case, consider having an emergency fund that could help defray some portion of the cost is such an event could occur.  Even if that event never occurred, an emergency fund that covers 6 months of living expenses could be very handy in the event of a job loss or some other emergency that is equally painful financially.

What do you think?  Share your thoughts, comments and questions with us in the comments section of our blog or on our Facebook page.  I’d love to hear from you.