Preparing for the Deluge: Why Everyone Needs Flood Insurance
In the wake of Hurricane Katrina, no one could ignore the shocking media coverage documenting the devastating destruction. When the levees broke and storm waters surged, homes were swept away, families were left stranded on rooftops and many lost their lives. Suddenly, families throughout the nation were forced to ask themselves a frightening question: “What would happen if, in the blink of an eye, we lost everything to a rush of floodwaters?”
FEMA points that out that everyone needs flood insurance. Unfortunately, too many families assume that they don’t need flood insurance because the government will give them the financial support they need if they lose their home in a major flood. This is simply not the case.
The government only provides disaster assistance if the area where the flood occurs is officially deemed a disaster area. Even when the government does provide financial assistance to families in a disaster area, it’s not a payout—it’s a loan that must be paid back, interest included.
Read on for a few important facts everyone should know about floods and flood insurance.
Think you’ll probably never be affected by a flood? Think again. According to the National Flood Insurance Program (NFIP), floods are the #1 natural disaster in the U.S. Here are a few more enlightening flood statistics from the NFIP:
- Floods and flash floods occur in all 50 states.
- Everyone lives in a flood zone.
- 20 to 25% of all flood insurance claims are filed in low to moderate-risk areas.
- Just an inch of water can cause costly damage to your property.
- Your home has a 26% chance of being damaged by a flood during the course of a 30-year mortgage, compared to a 9% chance of fire.
- Over the past 10 years (1999-2008), the average flood insurance claim paid in the US was more than $45,000.
- Over the past 10 years (1999-2008), the NFIP paid over $25.5 billion to flood insurance customers.
- The NFIP awarded over $2.6 billion in flood claims to-date in 2008.
Homeowner’s insurance doesn’t cover flood damage
Damage to your home resulting from a flood is not covered by homeowner’s insurance. Why not? Basically, it’s a way for insurance companies to protect themselves. In the 1960’s, a handful of waterfront communities, all covered by the same insurance companies, were slammed with major floods. The deluge of insurance claims resulted in cataclysmic losses for the insurance industry.
Consequently, in 1968, the federal government created the National Flood Insurance Program (NFIP), which is administered by FEMA. According to FEMA, the NFIP was formed to “reduce future flood damage through community floodplain management ordinances, and provide protection for property owners against potential losses through an insurance mechanism that requires a premium to be paid for the protection.”
It’s not available everywhere
Flood insurance is only available in communities where “the appropriate public body has adopted adequate floodplain management regulations for its flood-prone areas.” Unfortunately, communities are not required to follow proper floodplain management techniques. So, before you start shopping around for flood insurance, you’ll want to makes sure that your community is covered.
Coverage is delayed
If a major storm is about to hit your town and local meteorologists are predicting potential floods, you can’t run out and buy flood insurance and expect to be covered. Generally, your policy must be in place for 30 days before it takes effect.
Not all floods are created equal
Flood insurance only covers damage caused by waters rising from the ground. According to FEMA, the official definition of 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 your property).” FEMA specifies that floods are caused by:
- Overflow of inland or tidal waters
- Unusual and rapid accumulation or runoff of surface waters from any source
- A mudflow
- The collapse or subsidence of land along the shore of a lake or another body of water, caused by erosion or undermining caused by waves or currents of water
If your home is damaged by a rush of water from broken pipes or a main break, FEMA says your flood insurance will not cover it unless “there is a general condition of flooding in the area and flood is the proximate cause of sewer or drain backup, sump pump discharge or overflow, or seepage of water.”
The price varies
The price tag on flood insurance varies, costing anywhere from $223 to $3,000 a year. The price you pay depends on where you live and what type of coverage you want.
Through the NFIP, $250,000 is the maximum amount of money you can receive to rebuild the structure of your home. However, private flood insurance companies can cover far beyond that amount—for a higher premium, of course. You’ll have to pay extra if you want to cover personal items within your home. Contents damaged by a flood are covered only up to $100,000. If you are renting a home, you can purchase flood insurance to cover your belongings for up to $100,000.