A recent buyer asked...Do I need flood insurance? And Should I have earthquake insurance?

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Real Estate Agent with Solutions Real Estate CA DRE #01490977

A recent buyer asked...Do I need flood insurance?

And should I have earthquake insurance? 

The answer is IT DEPENDS. 

FloodingWith regard to earthquake insurance, it is optional, and not required by a lender as a condition of a loan. I asked two well respected mortgage officers I know.  That's true at least right now. Requirements could change, I suppose, as they seem to every day. 

Having earthquake insurance may be a good idea, especially if the home is found to be located in an earthquake fault zone per the Natural Hazards Report (e.g., First American, Disclosure Source, Property ID) and the maps compiled by the California State Geologist. 

As we all know here in CA, earthquakes are pretty common, but generally low level, and many areas can experience them.

Check out the California earthquake map for the last week.

Being in an earthquake fault zone is no guarantee of an earthquake significant enough to cause damage, but it's more likely. But not being in such a zone is no guarantee you won't have one either. Or that there won't be one at a level substantial enough to cause damage. 

It all boils down to choice, and whether you want to spend the additional money (earthquake insurance is not inexpensive). And probably being prudent in some areas.

Flood insurance is another matter. Flood insurance may be required if the lender determines the home is located in a flood zone. This will likely be noted in the Natural Hazard Report as well. (photo courtesy of U.S. Geological Survey on Flickr

What is determined to be a flood zone sometimes is hard to understand. I remember buying our home in Bolton, MA, on a hill at least 30 feet ABOVE the level of the stream and wetlands across the street. Yep, flood zone. 

The questions about having flood and earthquake insurance are good ones and often come up with buyers. 

Thoughts on these matters or experiences you'd like to share?

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CALIFORNIA REAL ESTATE
Advice for Buyers
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Rainer
240,177
Peggy Hughes/pha logistix, inc.
pha logistix inc - San Francisco, CA
SF NYC LA

Great information and resources, Jeff.  As a former insurance underwriter (many, many moons ago!), we regularly referred to those maps in order to make our decision to accept the risk or not.

Apr 30, 2011 04:17 AM #1
Rainer
372,583
Tish Lloyd
BlueCoast Realty Corporation - Wilmington, NC
Broker - Wilmington NC and Surrounding Beaches

Jeff ~  Living near the water, there is frequently a requirement for flood insurance by the Lender, therefore, no choice.  Where no Lender is involved, I often have owners who prefer to "self insure".  As far as earthquake insurance -- that's not an issue in our area.  In this time of such horrific storms and earthquakes, fires and tsunamis -- how could you possibly decide . . .

Apr 30, 2011 04:20 AM #2
Rainmaker
2,672,457
Debbie Gartner
The Flooring Girl - White Plains, NY
The Flooring Girl & Blog Stylist -Dynamo Marketers

shoot.  I just lost my comment

I think it's important to speak to an insurance agent/broker (even better if it's someone you trust and recommend).

I often come in on the other end...after someone's had a flood and they need to fix the flooring.  Too often I see people w/ bad policies and they aren't covered for this or only partially covered.  What breaks my heart is that most people thought they were covered when they weren't.  They get water damage and flood insurance mixed up (and understandibly so).  So often their policy covers things caused by the house items (e.g. water heater, sump pump) but aren't covered by water coming in from the outside (flood).

I think it's most important if you have a basement, esp a finished basement.

But, again, I'm not the expert and you're right, there are no guarantees either way.  depends on risk tolerance.

Apr 30, 2011 05:04 AM #3
Rainmaker
669,398
Martha Brown
Long & Foster Real Estate, Inc., Annapolis MD 21403 - Annapolis, MD
Your Homes Around Annapolis Agent

We are a water oriented area and fllod insurance, though not required in many areas, is something many homeowners have anyway. You just never know when something freaky with nature can happen.

Apr 30, 2011 07:19 AM #4
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George Souto
George Souto NMLS #65149 FHA, CHFA, VA Mortgages - Middletown, CT
Your Connecticut Mortgage Expert

Jeff, Flood Insurance is very expensive, but you can't get financing without it.  Every loan that we do these days we pull a Flood Certificate on the property.  Some Sellers are surprised to find out that their property is in a Flood Zone, that is because FEMA recently revised their maps, and properties that were not previously considered in a Flood Zone, have now been designated as Flood Areas.  So Sellers would be wise to check that out before they put their house on the market, because it can be a reason for a Buyer to pull out of a contract if it is found out during the loan process that the property is in a Flood Zone.  It is better to address that issue up front.

Apr 30, 2011 07:54 AM #5
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William Johnson
Retired - La Jolla, CA
Retired Real Estate Professional

Hi Jeff, I noticed recently that FEMA re-drew the 100 Year Flood Plain map of the US and places that were never in a flood zone may now be.

As to the Earthquake insurance, my nephew lived in Northridge and lost his home. No insurance. With all the adjustments in the earths plates of late, I feel certain that CA will be facing an increased peril one day soon and we will all learn a new thing or two about what and how these factors may affect us. But then look at the tornadoes and the hurricanes around our country and the world over. With all the increased activity, it would be my feeling that being over prepared in these times might be the smartest idea. I used to have this type of insurance and it is probably time to reconsider having it again.

If I were aksed that question, I think I would recommend strongly that people look into it. Our Zone reports that are now required might have a tip as to our vulnerablity. I might also answer the question if asked this way. " Do You Fell Lucky ?"

Apr 30, 2011 09:44 AM #6
Rainmaker
158,740
Deborah "Dee Dee" Garvin
C2 Financial - San Diego, CA
C2 Financial

Jeff,  Great topic for discussion.  As William mentions the sudden outbreak of tornados in the Southeast should give us all pause.  And, Debbie's comment is so relative:  Most home owner's policies do not cover floods and it is amazing to me that most insurance agents do not disclose this.  In fact, I have found too many insurance agents sell "a" policy, not coverage.  Most people just have a policy and never look at it until there is a potential claim.  All comments regarding flood insurance are accurate:  Lenders require it if the home is in a flood plain.  However, I have been successful in getting the requirement reversed if the FEMA maps are updated and changed.  The maps are not stagnant as George's comment indicates.

Apr 30, 2011 01:05 PM #7
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Barbara-Jo Roberts Berberi, MA, PSA, TRC - Greater Clearwater Florida Residential Real Estate Professional
Charles Rutenberg Realty - Clearwater, FL
Palm Harbor, Dunedin, Clearwater, Safety Harbor

What a GREAT post! Hope it gets featured as it should be! You can never have too much insurance! People ask me here, on the Gulf Coast, if they should have flood insurance. My comment is that YES, you should have it and if you are not in a designated flood zone, it is really relatively inexpensive. (Naturally if you are directly on the coast or in a designated flood zone, it is anything BUT inexpensive!)

May 01, 2011 02:52 AM #8
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Jeff Dowler, CRS
Solutions Real Estate - Carlsbad, CA
The Southern California Relocation Dude

Peggy - thanks. They are important considerations and buyers need to make the decision for themselves on earthquakes, but that decision can be made for them regarding floods

Tish - and I bet insurance companies are making changes in their policies in terms of what they cover and don't, and what they charge for it. Some, I bet, won't even provide coverage in high risk areas.

Debbie - that clearly is an important distinction regarding the source of the damage.

Martha - and there have been alot of surprises this year.

George - I think that is an excellent suggestion for sellers to investigate, and something we should, as their agents, mention.

William - agreed. With all the natural disasters we are seeing, I suspect many more will be looking into there coverage. And I imagine the rates will cotnonue to rise because of all the payouts.

Deborah - I suspect many homeowners really DON'T know what is covered in their insurance policies, and make assumption some things are that are not.

Barbara-Jo - I would think in your area it would be particularly important.

Jeff

May 01, 2011 04:58 AM #9
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