Should You Purchase Flood Insurance?

Federally-backed flood insurance can prevent financial disaster.

Tens of thousands of homeowners in the northeastern United States are battling with their insurance companies right now as they seek to recover from floods following Hurricane Irene. Areas not prone to flooding suddenly faced catastrophic damage, as waters surged down mountainsides, filled ravines and spilled over into small and often isolated communities in New England, New York and in New Jersey.

Flood Coverage

Homeowners insurance covers against wind and rain damage, but many such homes received flood damage, a stipulation not covered by insurance companies. Flood insurance, available only through the federal government, is not something many people had considered as a necessity before Irene blew through. Which leaves us asking one question — should you purchase flood insurance?

In a nutshell, that answer is an unequivocal yes. Flood insurance closes the risk gap, protecting homeowners from the unthinkable. That sort of “unthinkable” happened for homeowners who live outside of federally designated flood zones, catching these people unprotected.

Federal Insurance

You might ask, “how can I get flood insurance?” As mentioned, only the federal government offers flood insurance, although authorized local insurance agents can discuss your needs and offer you a quote which does not vary from agent to agent. Keep in mind that there is a 30-day waiting period on new flood insurance policies.

Visit floodsmart.gov to find out if you’re currently in a flood zone or what the risk of a flood is to your home. Click on the box for “one-step flood insurance profile” and enter your property information. Check “yes” to show that your address is a residence. Once the results are served, you’ll be given a wide ballpark of numbers explaining what your coverage might be and your generalized costs. Talk with an agent to get quotes on contents only, building only and contents and and building combined.

Risk Tolerance

The served results should offer premium information which is based on whether you have a basement or not and what you would like to have covered — building, contents or both. Your property will also be placed in one of three categories: moderate-to-low risk areas; standard rated policy (zones B, C and X); and standard rated policy (zone A).

The latter two categories are by far the most expensive, reflecting the increased risks associated with insuring your property. Such rates can be approximately 5 to 8 times greater than the standard flood insurance rate. Contact an agent to learn how much you might pay.

NFIP Participation

Is flood insurance a good thing? You bet, especially since you cannot buy this insurance apart from the federal government which has managed the National Flood Insurance Program since Congress passed legislation providing a way for homeowners to protect themselves. Renters and business owners can obtain coverage too, but such insurance is only available if your community participates in the NFIP.

See Also — Understanding the True Costs of a Mortgage

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