Sally just purchased a beautiful home on a riverbank for what she thought was a very good deal. She later learned that her house was very susceptible to flood damage during the rainy season. Which of the following statements best describes the effect the location of Sally’s new home will have on her homeowners insurance premium?

Question

a.
Financial loss due to flood damage is likely. Her insurance premiums will be higher than homes not on the waterfront.
b.
Since floods are likely, the value of the home decreases significantly, lowering the insurance premium at the same time.
c.
Since floods happen so infrequently, they are not considered a real threat to the value of the home. Sally’s insurance premium will not be affected.
d.
While extremely annoying, flood damage is usually inexpensive and will not affect the value of the home. Sally’s insurance premium should not be affected.

Answer 1

The statement that best describes the effect the location of Sally’s new home will have on her homeowners insurance premium is:

a. Financial loss due to flood damage is likely. Her insurance premiums will be higher than homes not on the waterfront.

This is because homes located in flood-prone areas usually face higher insurance premiums due to the increased risk of flood-related damages.