Those who live in flood prone areas should know one thing first: Homeowner’s insurance will not cover damages incurred by a flood. You need flood insurance — a special policy backed by the federal government with cooperation from local communities and private insurance companies.

Congress created the National Flood Insurance Program (NFIP) in 1968 to enable homeowners, renters and business owners to purchase flood insurance. While the policy is backed and administered by the federal government, policies are purchased through regular insurance companies. Flood insurance policies are easy to find. Probably your current home insurer writes and services flood policies.

To be eligible, you must live in a community that participates in the NFIP. In return, communities must implement floodplain management regulations that minimize future flood losses. To see if your community participates in NFIP, check its Community Status Book. Your mortgage insurer might even require you to carry flood insurance.

Although flood insurance can be relatively inexpensive depending on where you live, most Americans neglect to purchase protection. Yet your home has a 26 percent chance of flooding as opposed to the 9 percent chance of fire during the course of a typical 30-year mortgage, according to the NFIP. In fact, one-third of claims paid by the NFIP in 2006 were in "low flood risk" communities.

Almost 20,000 communities have agreed to stricter zoning and building measures to control floods and the Federal Emergency Management Agency (FEMA) estimates that those flood controls reduce losses by nearly $1 billion a year.

NFIP is also in charge of mapping the nation's floodplains, which provides the basis for flood-management programs. NFIP offers an online tool where you can find out the flood risk for your property.

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 money from service fees allotted by the NFIP. You can find agents selling flood insurance through the NFIP Web site, or call your current home insurer.

Picking a policy

As a homeowner, you can insure your home up for to $250,000 and its contents up to $100,000. If you're a renter, you can cover your belongings up to $100,000. As a non-residential property owner, you can insure your building and its contents up to $500,000. Business structures and contents can be insured for up to $500,000 each.

Under the NFIP, you must select from a menu of coverages for structure and contents, and prices are pre-determined for all choices. Coverage choices also vary depending on your flood-risk zone. For example, a homeowner in a low or moderate risk zone who wants the highest level of structure and contents coverage can choose the $250,000 structure/$100,000 contents coverage for $1,251 annually; that goes up to $2,462 in high-risk zones and $5,358 in high-risk coastal zones. A variety of lower coverages are available depending on your budget.

If you live a zone judged low to moderate risk, you qualify for a Preferred Risk Policy (PRP). This lets you buy less coverage and save money. A homeowner can purchase a minimum of $20,000 building and $8,000 contents coverage for $112 a year ($25 more if there is a basement). Renters can buy $8,000 in contents coverage for $39 a year. Business owners can buy $50,000 building and $50,000 contents coverage (per building) for $500 per year.

A flood policy does not take effect until 30 days after purchase. So, if the weather forecast announces a flood alert for your area and you go to purchase coverage, it's already too late; you will not be insured if you buy a policy a few days before a flood.

Know the government's definition of a flood before you purchase a policy. For example, if water comes into your basement after heavy rains, that wouldn't qualify for a claim. Here are the conditions that need to be met for flood insurance to kick in:

A flood is "a general and temporary condition of partial or complete inundation of two or more acres of normally dry land area or of two or more properties (at least one of which is the policyholder's property) from:

• Overflow of inland or tidal waters; or
• Unusual and rapid accumulation or runoff of surface waters from any source; or
• Mudflow; 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."

Securing your own flood insurance policy is by far the best strategy for protecting against massive personal financial loss due to flooding. The federal government does not provide assistance unless the President declares a disaster, and even then, help comes only in the form of loans that must be repaid with interest.

Insurers and FEMA officials say the national flood program works best 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.