Florida’s First Coast dodged a bullet last week, when Hurricane Helene roared through several states for hundreds of miles, wreaking untold devastation on areas largely unprepared to handle this form of dangerous weather. As the death toll passes 200, and the missing toll remains in the hundreds, we look around our immediate area and breathe a sigh of relief. Minor power outages and messy yards were ubiquitous, but loss of life was nonexistent, to the best of my knowledge. The season is not over, and another storm is brewing. What now?
Feeling grateful is a good start, and donating whatever time and money is available to the rescue effort is also commendable, but Helene also presents a learning experience for all of us who live in Hurricane Country. An old saying reminds us that an ounce of prevention is worth a pound of cure. Though we can’t prevent hurricanes from doing what they do, what we can do is to prepare ourselves for the possibility that we will be hit hard one day.
Life exposes us to two essential forms of risk, insurable and uninsurable. Possessions can be insured against loss using conventional insurance policies. Unfortunately, most Americans are not adequately insured against catastrophic losses, whether from fire, windstorm damage, or flooding. One fundamental precept in financial planning is that the very day you need insurance is the first day that you can no longer obtain it. At the extreme of this rule of thumb is Flood Insurance, which is 30 times worse, in that a 30-day waiting period is imposed before the Flood Insurance Policy becomes effective.
Originally, Flood Insurance was offered by a handful of private companies, but that system failed. Floods violate a fundamental principle of insurance, in that floods affect everything and everyone in their path. There is no random selection, causing damage to be so widespread as to only be insurable by an entity as large as the Federal Government. As of this writing, Flood Insurance is only required by mortgage companies for mortgaged properties in government-designated flood zones.
We have argued for many years that this requirement is pathetically insufficient. This week illustrated that wisdom beyond anything we ever imagined when mountainous properties hundreds of miles inland flooded beyond salvation. They will not receive payments from their homeowners’ insurance policies when the damage is ruled flood (defined as damage from rising water). Many people will be wiped out, and my heart breaks for them.
Flood Insurance is expensive and rising much faster than the rate of inflation, rendering flood protection both a luxury and a necessity. At a minimum, all Floridians should be using this time to evaluate their coverages and costs. Waiting for a potential threat to present is not a plan.
Van Wie Financial is fee-only. For a reason.
