Flood Insurance: Is It Worth It And When Do You Need It? April 5, 2017 – Posted in: Blog
You already have home insurance and you’re paying a premium for it. Do you still need flood insurance? Many people think that standard home insurance coverage already includes flood damage repair. Unfortunately, unless your policy specifically states so, you still need to purchase a separate insurance plan if you’re concerned about the costly effect of water damage in your home, especially if you live in a flood-prone area.
What Is Flood Insurance?
Flood insurances cover direct physical losses caused by the flood. It is basically a type of insurance that covers a dwelling for losses caused by water damage specifically related to flooding.
However, it is important to note that the coverage for the structure and contents of the home are typically sold separately. Flood insurance is something that many American homeowners don’t consider. In fact, according to a 2016 report by the Insurance Information Institute, only 12 percent of American homeowners have flood insurance.
Floods are not covered under homeowners’ and renters’ policies, and most of these policies are administered by the federal government, through the National Flood Insurance Program (NFIP). For the home structure, the maximum coverage amount is $250,000 while for the home contents, it’s $100,000.
For commercial properties, flood insurance policies can cover up to $500,000 for the building and another $500,000 for the building contents.
How Does Flood Insurance Work?
In order to qualify for a flood insurance claim, the NFIP requires that water has to cover at least 2 acres of land that is normally dry, and should have damaged two or more properties, one being your home. The flood could come from tidal waters, overland flows, as well as a mudflow.
It can also take place when surface water run-off from the surrounding areas, exceeding the flow capacity of streams and rivers. Water and seepage coming from sewer or drain backups are not covered by flood insurance.
The NFIP policies are largely funded by the premiums and fees paid by the policyholders, and supplemented by general funds from the government. Most insurance companies do not provide flood insurance on their own because the risk is far greater.
What the government does is to subsidize the program and homeowners can purchase the policy through a private company. The government sets the rates for these policies. Basically, the monthly premium depends on a few factors, such as how much coverage the homeowner wants and how flood-prone the neighborhood is. Homes with basements have higher rates.
How Do I Know If I Need Flood Insurance?
When deciding whether to purchase flood insurance or not, location is the number one consideration of most individuals and families. However, according to the FEMA, inland flooding, flash floods and flooding from seasonal storms happen in almost every region of the United States. What’s more, 90% of natural disasters that occur in the country involve flooding.
What does this mean? Basically, even if you don’t live in a high-risk area, you still confront some flood-related danger. In fact, 20% of flood claims come from low to moderate flood risk areas. You can check your flood risk in the FEMA Flood Map Service Center.
How Much Flood Insurance Do I Need?
The type and of flood insurance you will get depends on varying factors. Of course, if you live in a high-risk area, the premium fee is much higher than what is paid for by policyholders in low to moderate flood risk areas. According to federal laws, the amount of your policy coverage is equal to your home’s rebuilding cost or to the maximum limit set by the NFIP.
When purchasing a flood insurance plan, the rule of thumb is that it should be equal the value of your home and possessions. Their worth is determined at the time you buy your policy. Note that most policies have individual limits on possession within a specific category.
Does Flood Insurance Cover Hurricanes?
Yes, it does. Hurricanes are a major source of flooding. They really bring serious damage to properties because of the high winds, flying debris and the heavy, soaking rains. Hurricanes can cause storm surges to coastal areas, as well as heavy rainfall that leads to inland flooding.
Flood insurance can be used to pay for the contents of a home that have to be replaced, such as your furniture and appliances, and of course – the full replacement cost of the building (or the maximum amount available, whichever is lower).
What flood insurance doesn’t cover are the outdoor property (deck, patio, landscaping, fences, etc.), money and important papers, cars and other self-propelled vehicles, mold/mildew damage that could have been avoided by the homeowner, and living expenses (such as temporary housing).
Do I Really Need Flood Insurance?
You most likely need one. Flood insurance is something that every homeowner should seriously consider. It may feel like it’s just an added expense but when reality strikes and you find your home soaked in water along with all your precious belongings, you will realize that purchasing flood insurance should have been one of your priorities as a homeowner.
Take note that there’s a 30-day waiting period before your newly purchased flood insurance plan takes effect. Thus, if it is something that you want, you have to act as soon as possible. And just like other types of insurance, you have the option to access better rates on flood insurance.
Whether you are taking one from a private company or through the NFIP, you can adjust your property to lower your monthly premium. Sometimes individuals and families find the home of their dreams — only to discover the home sits in a flood plain.
Loans for these homes may require flood insurance, but some loans may let you move forward without getting insured — which isn’t to say that forgoing flood insurance is a good idea.
The key question is the risk versus cost of coverage. Are you better off paying to repair flood damages rather than paying a hefty premium each month when there’s no guarantee you will experience a flood?
So, the question remains: do I really need flood insurance? Here is some information to you come to the possible answer to your unique circumstances.
Sources of Flood Insurance
If you decide you do need flood insurance for your home, even if it isn’t required, you can often find state-run programs, and you can always take advantage of insurance through the NFIP.
That said, make sure to explore private insurers, too. Private insurers often make flood insurance available, and their rates are sometimes even better than what you will find through the NFIP and other public programs.
Getting the Deal
Just like with any insurance policy, you can take measures to access better rates. For example, you can choose to install vents for flooding, which can to reduce the severity of water damage should your home flood.
You can also choose a high-deductible plan if you want to save your money for repairs and put some toward insurance premiums. The plan is the one that is right for you. Do the research in your area, and make the possible choice for your home and finances.
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