Flood Insurance

The Basics of Flood Insurance

One thing you can be certain you'll need when you're a homeowner is flood insurance -- unless your house is located in the high desert, on a hilltop, or many miles away from any floodplain. Even then, there are circumstances in which you might suffer from flooding, so it might be a good idea to hang onto that coverage just in case; in fact, it might even be required by your mortgage company, assuming you're still paying on your home.

Even if your home is paid off, don't make the mistake of thinking you don't need flood insurance. Flooding is among the most common of natural disasters, and few things cause as much damage as water. Water is the most abundant solvent in the universe, and it has absolutely no problem with taking apart the elements of your house once it gets inside. Not only that, its very dampness plays host to nasty things like black mold, which may be a boon to lawyers, but not to the folks who have to live with it. It's hard to recover from a flood without flood insurance.

Don't overplay your hand

There was a time when few (if any) private insurance carriers would cover water damage; it was just too common. This changed in 1968, when Congress passed enacting legislation for the National Flood Insurance Program (NFIP). The NFIP allowed homeowners to purchase flood insurance, as long as they lived in a community with a federally-approved floodplain management ordinance. While the program was a great help to the millions of people who suffered flood damage in the ensuing years, its very existence had an adverse affect; more people, assured that their damage would be covered if their homes were flooded, moved into flood-prone areas. As we've recently learned with the devastating Gulf Coast hurricanes, this can end up being a bad bet.

What can I do?

The lesson is not to get complacent about your flood insurance. If you can, avoid high-risk areas; if that's not possible, or if it's simply too late, make sure you have all the flood insurance you need to rebuild in the event of a once-in-a-lifetime disaster. If we're learned anything from the aftermath of Hurricanes Katrina and Rita, it's that we can't depend on state and federal agencies to bail us out in a timely fashion. Don't wait until it's too late; do your homework now.

You've got plenty of options in this regard. You can visit with a participating insurer in person, and learn everything you need to know about flood insurance and the premiums you'll pay. You'll need to bring along the relevant paperwork, from floodplain and land surveys to your plat information (all of which should have been supplied to you by your title company at closing). Alternately, you can get estimates of premiums by going online and checking yourself. Your yearly premium will be calculated based on your location (i.e., whether or not you are in a floodplain, and how close to the stream you are) as well as whether you want to insure the contents only, the structures only, or both. Unsurprisingly, the higher the value of your house and contents, and the more likely you are to be flooded, the more expensive your premium. Deductibles are $500-$1000, depending on your likelihood of being flooded. As for the premium itself, you usually have the option of paying it yearly or semi-yearly (the less expensive option, in the long run), or paying it in installments along with your house note.

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