“To purchase Earthquake or Flood insurance, or to not purchase it?” is an ongoing debate. While some may feel it not necessary, many find peace of mind knowing that their most valuable asset, their property, is covered in case of a catastrophic event. Probably the easiest way to determine if your Association needs earthquake or flood insurance is to ask yourself these two simple questions:
- “Is our property in an area where there is a good possibility of earthquakes or flooding?”
- “If there was a catastrophic event, could we afford and would our Association recover, if we had to repair the damages out of the Association’s cash fund?”
If you live in the Pacific NW, chances are you’ve heard experts say we should prepare ourselves for a major earthquake. It’s not a matter of “if it happens”, rather “when it happens”. And then there’s the rain. Yes, we live in a region with excess water. It rains… a lot.
That being said, it’s important to understand that neither earthquake nor flood coverage is included on your Association’s master policy. They must either be endorsed or purchased with a separate policy. Living in the NW, it’s sound advice that the Board protect your Association’s investment by purchasing both earthquake and flood coverage.
When your Association does purchase earthquake insurance, it is a common misconception that ANY DAMAGE will be covered when the “big one hits”. However, building foundations, walkways, pools, carports, garages, fences, underground pipes, and walls are examples of components that may not necessarily be covered. Other possible exclusions are fire, land or vehicle damage; pre-existing, external water, or masonry/veneer damage. These are areas that you must review and understand.
Other items your Association should consider when reviewing your earthquake coverage:
- What does your Association’s EQ/earthquake policy cover (bare walls, walls-in)
- What is the deductible
- What is included in the building limit?
- What is the “Occurrence period”
Flooding can occur in various ways and must not be confused with “water damage”. If your Association is located in a ‘high hazard flood zone’, lenders may require your unit owners to purchase their flood coverage.
But floods don’t always occur in ‘high hazard flood zones’. In fact, according to FEMA, 1/3 of their floods claims occur outside the ‘high hazard flood zone’ areas.
Per FEMA’s website, the definition of flood is:
- A general and temporary condition of partial or complete inundation of 2 or more acres of normally dry land area or of 2 or more properties (at least 1 of which is the policyholder's property) from:
-Overflow of inland or tidal waters; or…
-Unusual, rapid accumulation or runoff of surface waters from any source; or…
- Collapse or subsidence of land along the shore of a lake or similar body of water as a result of erosion or undermining caused by waves or currents of water exceeding anticipated cyclical levels that result in a flood as defined above.
Flood Insurance can be purchased through the National Flood Insurance Program (NFIP) or through the private insurance market, if available. Each policy will have its own pro’s and con’s, and it’s important that your Association understands the logistics when considering or reviewing your flood policy so you’re your Association is fully protected. The maximum limit through NFIP is $250,000 per unit or the replacement cost of the building, whichever is lower.
It’s imperative you understand that not all insurance policies are equal, including master policies, earthquake or flood insurance. Working with an Agent that is knowledgeable in the intricacies of adequate insurance policies for your Association (including earthquake and flood coverage which can be complex) can make the difference between having adequate coverage during a disaster –vs- financial ruin for your Association.
Call Vern or Sara at ABI Insurance today to review your Association’s policies. With their expert knowledge in Association coverage, purchasing Earthquake and Flood coverage for your Association may be one of the best things you can do to protect your Association’s property.