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 paid by policy holders.
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, flooding is 26 times more likely to occur than a fire during the course of a typical 30-year mortgage.
Purchasing your policy
The average flood insurance premium in 2000 was $353 a year. The average amount of flood insurance purchased in 2000 was $124,089. Policies are available in three forms: “Dwelling” (most homes); “General Property” (apartments and businesses); and “Residential Condominium Building Association Policy” (condominium). All have limits on coverage. You might be eligible for discounts if you live in a low- to moderate-risk zone.
A flood of data
Wondering what type of policy you should buy and how much coverage you need? Do you simply need a good definition of a flood? The Federal Emergency Management Agency (FEMA), which oversees the National Flood Insurance Program, answers these questions and more on its website.
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 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 be taken from taxpayer funds.
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 National Flood Insurance Program. 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. You can check the financial strength of companies at www.ambest.com.
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 ecological areas. The government discourages development by withholding subsidized insurance.
Some insurance companies are willing, however, to expose themselves to higher risks and take on policies in some of the developed barrier areas. Instead of specific fees in premiums offered through the government program, a few private companies will charge an annual fee for flood coverage. Check with your favorite professional insurer for specific information.