Many people are unaware that their homeowners policy will not cover losses resulting from a flood. A separate Flood Insurance product can be purchased however, and this type of policy is what pays for most of the insured flood losses in the United States. These policies are underwritten by traditional insurers, but subsidies are provided by the National Flood Insurance Program (NFIP) created by Congress in 1968. This program is administered by the Federal Emergency Management Agency (FEMA), which provides the actual insurance product through private insurance companies.
Should You Shop Around?
When it comes to saving money on Flood Insurance, you will find that shopping for lower rates is not something that applies to this type of insurance because the rates are set by the Federal Government.
Flood insurance is federally mandated for any home with a mortgage in a high-risk location. This mandate was put in place because statistics show that over the course of a 30 year loan there is a 1 in 4 chance that a flood will happen in these high-risk areas. Homes located in moderate or low risk areas typically are not required to maintain flood insurance but it may still be a good idea to obtain flood insurance because floods can happen anywhere. In fact, approximately 25% of flood policies are issued in areas that are not considered high risk.
What Does It Cover?
Flood insurance has coverage that protects the building and your personal property inside your home. The building coverage can be insured on a replacement cost basis (the cost to rebuild) up to 80% of the building’s replacement cost. The other option is it can be insured on an Actual Cash Value basis, which would result in a lower payout since depreciation will be applied to the replacement cost. The coverage for personal property can only be insured on an Actual Cash Value basis.
A flood insurance policy has special limits that apply to your building and contents so you will want to discuss your options with a professional insurance agent to make certain that you can obtain the most available coverage for your home.
Regardless of whether your home is in a high-risk flood zone, the threat from flood is very real and very devastating. It is an important policy for any homeowner to maintain.