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Who needs flood insurance?

Read the Spanish version: ¿Quién necesita un seguro contra inundaciones?

Those who live in flood prone areas should know that a standard home insurance policy will not cover damages caused by a flood. For that you'll need flood insurance, which is a special policy backed by the federal government with cooperation from local communities and private insurance companies.

flood insuranceCongress created the National Flood Insurance Program (NFIP) in 1968 to enable homeowners, renters and business owners to purchase insurance. While the policy is backed and administered by the federal government, you can purchase one through regular home insurance companies. If you purchase a home in a moderate- to high-risk flood zone, most lenders require that you have flood insurance before they will give you a mortgage.

Flood insurance eligibility

To be eligible for flood insurance, 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.

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. Almost 25 percent of all flood insurance claims come from areas with low to moderate flood risk.

NFIP says the average flood claim has been over $33,000 for the past 10 years.

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 flood insurance prices, 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 insurance company.

Picking a flood insurance policy

Top misconceptions about flood insurance

You can get flood insurance nationwide.

You can get flood insurance if you live in a floodplain or high flood-risk area.

You can get flood insurance if you live outside a floodplain, or in a low to moderate flood-risk area, and at lower cost.

You can get flood insurance if your property has been flooded before.

You can get flood insurance from insurance agents in your area.

You can buy flood insurance even if your mortgage lender doesn't require it.

Source: National Flood Insurance Program

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 for up to $100,000. If you are a business owner, you can insure your building and its contents for up to $500,000.

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. You can also customize your policy to cover building or contents separately, which is significantly cheaper.

The average annual cost of a flood insurance policy is $570 annually. But if you live in a low- to moderate-risk area, a Preferred Risk Policy can be as low as $129 a year. For renters in a low- to moderate-risk area, annual rates can be as low as $49 annually for contents-only coverage.

Some insurance companies also offer “excess” flood coverage, so you can buy coverage for amounts above the standard flood policy limits. If your community doesn’t participate in the NFIP, you may also be able to buy flood coverage from a private insurer, according to the Insurance Information Institute.

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.

Definition of 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 would not 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 financial assistance unless the President declares a disaster, and even then, help often comes in the form of loans that must be repaid with interest.

Insurance companies and FEMA officials say the national flood program works best when more people participate. This lowers insurance quotes, 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.

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