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| The Basics | Who needs flood insurance? You do
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Don't wait until you're rolling up your pants and packing sand bags to check out your insurance options. Second only to fire, flooding is the most common natural disaster.
By Insure.com
When your home is flooded, it can lead to financial ruin if you don't have the proper insurance. And note this: A basic homeowners policy won't cover your flood damage! You need flood insurance -- a special policy backed by the federal government, with cooperation from local communities and private insurance companies.
About 200 insurance companies, possibly including the company that already handles your homeowners or auto insurance, write and service flood insurance policies for the government, which finances the program through premiums.
Although flood insurance is relatively inexpensive, most Americans neglect to purchase protection. Only about one-quarter of the homes in areas most vulnerable are insured against flood loss, according to the Federal Insurance Administration (FIA). In those areas, a home has a 26% chance of being damaged by a flood during the course of a typical 30-year mortgage, compared to a 9% chance of fire. But even homes in low-risk areas are not immune -- one quarter of all claims paid by the NFIP are for policies in low- to moderate-risk communities.
More than 20,000 communities have agreed to stricter zoning and building measures to control floods, according to the Federal Emergency Management Agency (FEMA). Residents in these communities are entitled to purchase flood insurance through the National Flood Insurance Program (NFIP), a program FEMA oversees.
Purchasing your policy
The premium for a $100,000 flood policy costs about $400 a year. Policies are available in three forms: "Dwelling" (most homes); "General Property" (apartments and businesses); and "Residential Condominium Building Association Policy" (condominiums). All have limits on coverage.
You might be eligible for discounts if you live in a low- to moderate-risk zone. In these areas, your flood insurance premium may be as low as $112 a year. Use the FEMA link at left for more information about preferred risk policy premiums.
In general, the policy does not take effect until 30 days after you purchase flood insurance. So, if the weather forecast announces a flood alert for your area and you run to purchase coverage, it's already too late. You will not be insured if you buy a policy a few days before a flood.
Insurers and FEMA officials say the national flood program works best for everyone when more people participate. This lowers rates, increases the pool of funds from which to draw in the event of a flood, and lessens the chance that claim payments will have to taken from taxpayer funds. To see if your community participates in NFIP, check FEMA's site with the link at left.
Picking a company
Since the federal government sets the rates, private insurance companies that sell flood insurance compete on service, not on price. These "Write Your Own" companies make their profit from service fees allotted by the NFIP. When comparing insurers, one question to ask is how quickly are claims resolved? A company in poor financial health may not be able to pay its claims as promptly as a prosperous company.
When writing flood insurance policies, companies tend to focus on specific regions. Unisun, for example, provides coverage to homeowners from Virginia to Texas. Other major flood insurers, such as Bankers Insurance Group, write policies throughout the country, but are not considered national providers. State Farm, Allstate, Mutual of Omaha, and Travelers are examples of companies that write nationally.
To find out which insurance companies sell flood insurance policies in your state, visit the FEMA site.
Living on the shoreline? It'll cost you
If your home sits between the mainland and often-stormy, ocean waters, you might not be eligible for federally subsidized insurance. The government limits its liability by excluding property owners in such areas as the North Carolina Outer Banks, sections of the Florida panhandle, and selected areas in Delaware and South Carolina. The reason stems from the Coastal Barrier Resources Act, which is designed to protect wildlife living in valuable ecological areas. The government discourages development by withholding subsidized insurance.
Some insurance companies are willing to expose themselves to higher risks and take on policies in some of the developed barrier areas. Instead of $400 in premiums offered through the government program, a few private companies will charge about $3,000 a year for flood coverage of slightly less than $200,000.
Copyright insure.com. All rights reserved.
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