Wind vs. Rain: The Financial Fallout of Severe Weather

The past few weeks have brought some extremely deadly and destructive weather upon large swathes of the United States, particularly in the Midwest. The incidence of severe storms spawning tornadoes has been increasing in recent years, and in the wake of Hurricane Sandy, it becomes more and more pressing for homeowners to be aware of the extent of their insurance coverage.

The May 19-20 tornadoes resulted in more than 22.5K property and auto insurance claims being filed in Oklahoma alone, a number which could easily double after this past weekend’s tornado outbreak.  “The staggering number of claims in one week's time shows just how disastrous severe weather can be in our state and the importance of protecting yourself with insurance,” Oklahoma Insurance Commissioner John D. Doak said in a statement.

InsuringFlorida.org reports that “standard homeowners and business insurance policies cover wind damage caused by tornadoes and severe weather. Homeowner’s insurance policies also provide coverage for additional living expenses policyholders will need to finance temporary housing costs and other daily necessities.”

Awareness would not be as key if wind damage was all there is to severe storm fallout, but sadly this is not the case. The true culprit here is flooding.  Standard homeowners insurance does not cover flood damage and losses. According to a post-Sandy NJ.com article, “To be covered for flooding, a separate policy must be acquired through the National Flood Insurance Program. Only home and business owners in high-risk flood zones who have mortgages through a federally backed lender, like a bank, are required by law to purchase federal flood insurance.”  This can also be complicated when buyers purchase homes with cash; without a mortgage, there is no bank-mandated requirement to purchase flood insurance.

In the wake of storms like Sandy, Irene and Katrina, flood damage is frequently associated with hurricanes, but the vast majority of flooding occurs during non-hurricane level severe weather.  Storms like the ones in the Midwest this weekend can produce multiple inches of rain per hour, causing intensely dangerous and destructive flash floods sweeping away people and property in a manner of minutes.

The mortgage industry is frequently more concerned with the value of a property at the time of an appraisal and sale, numbers from which factor into everything from that state of the economy to the State of the Union.  What most appraisals don’t tell us is how longstanding the value of any property may be, and while we expect prices to fluctuate over time, we mostly don’t expect them to bottom out in under an hour. Flood insurance is an oft-overlooked aspect to ensuring that such a rapid personal disaster doesn’t affect your individual finances.

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