What Consumers Should Know About Flood Insurance

Many people may not realize the importance of having flood coverage. Others see it as impractical and unnecessary. However, only a few inches of water can cause serious damage to a home or property. When this happens, home and business owners have to spend a lot for restoration and repair. With flood insurance, all these will never be a problem.

According to the National Weather Service, 30-year flood loss averages have already reached $7.82 billion in damages. Flash floods cause the majority of this damage. It is the number one natural disaster in America. Fortunately, the government has established the National Flood insurance Program. The organization provides residents with flood insurance at reasonable rates.

Residential and commercial buildings at high risk areas with pending mortgage loans from lenders or other federally regulated financial providers must have flood insurance. This is because there is a 1 percent or more chance that flooding occurs in these areas every year. This equates to a 26 percent probability of having a flood duringa 30-year mortgage.

Meanwhile, homes and buildings built in moderate to low risk areas with existing mortgages from insured lenders need not purchase flood insurance. Nevertheless, the NFIP still recommends buying a flood insurance policy because homes anywhere in the U.S. are vulnerable to flooding. Consumers in these areas may be eligible for 20 percent of NFIP claims.

The following are the different types of floods that the USGS defines. All these types of floods may be covered with NFIP flood insurance:

• Storm-Surge Floods

Onshore winds usually trigger storm-surge flooding. It pushes water towards dry land. The worst storm-surges occur when they are accompanied by high tides.

• Flash Floods

Flash floods are the fastest occurring type of flood. They can happen in a few seconds to an hour with little or no warning at all. What makes them incredibly dangerous for humans and properties is their velocity and incredibly fast water rise.

• Regional Floods

Regional floods usually happen during spring or winter when the rain pours as the snow melts. With this, the river basin gets full quite fast. The ground is often still frozen, and this means reduced soil infiltration and worsened run off.

• Landslide, Debris and Mudflow Floods

The accumulation of rocks, debris, mud or logs that form temporary dams can cause landslides or debris floods.

• Ice-Jam Floods

Ice-jam floods usually occur in rivers that are either partially or totally frozen.

• Dam and Levee-Failure Floods

Although dams and levees are specially designed to prevent floods, water may rise very high and go over these structures. They may be washed out and form flash floods.

Benefits of Flood Insurance

No matter what type of floods occur, people with flood insurance can be confident that they can get back what they have lost. According to the U.S. Department of Homeland Security Federal Emergency Management Agency, flood insurance has the following benefits.

• With flood insurance, policy holders may be eligible for insurance claims even if the president does not declare it a disaster.

• Even consumers outside Special Food Hazard Areas can file a claim. In fact, the NFIP has paid about 20 to 25 percent of all claims coming from those areas.

• Flood insurance can be renewed. It is continuous.

• There is no need to repay a loan like with some federal disaster relief packages.

• There are agents who can help speed up the claims process. With this, consumers don’t have to worry about dealing with an unlivable property as they can have it repaired right away.

Flood Insurance Coverage

Building Property Coverage
• Insured building including its foundation.
• Detached garages may qualify for up to 10 percent building property coverage. However, areas other than the garage may need to be insured with a separate policy.
• Permanently installed cabinets, bookcases, wallboard, paneling and carpeting over an unfinished floor.
• Built-in appliances like dishwashers and cooking stoves and refrigerators.
• Heating and central air conditioning systems.
• Plumbing and electrical systems.

Personal Property Coverage
• Personal possessions like clothing, electronic equipment and furniture.
• Valuable items like furs and artwork worth a maximum of $2,500
• Food freezers and food items inside
• Clothes dryers and washers
• Carpets that are not included in building property coverage
• Portable dishwashers and microwave ovens
• Curtains

Exceptions
• Self-propelled vehicles and their parts including cars.
• Income loss due to damaged insured property or interruptions in business operations.
• Living expenses
• Any items and property outside the insured building like patios, decks, walks, septic systems, swimming pools, wells, plants and trees.
• Precious metals, currency and valuable documents like stock certificates.
• Avoidable damages such as those caused by mildew, moisture and mold.

Types of Flood Insurance Policies

Properties located in low, moderate or high risk flood zones can be eligible for NFIP flood insurance. However, they should be included in the participating community. The following are the two types of flood insurance policies that consumers may take advantage of.

• Preferred Risk Policy

In order to qualify for PRP, the property should be located in a low to moderate risk flood zone. The applicants’ credit score and driving record will not affect the coverage’s cost.

• Excess Flood Insurance Coverage

Consumers who already have purchased the PRP may realize that the coverage provided does not fully cover their possessions. They may need to purchase more than the maximum coverage of $100,000 for personal property and $250,000 for buildings. Consumers may buy this additional coverage if they think they have to.

Other Important Things to Know

Consumers can only secure flood insurance through an agent. They can never buy it straight from the federal government. They may have to search for insurance agents in the area who are familiar with the NFIP.

Also, consumers must understand that there are some items that the policy may or may not cover. They have to bear in mind that flood insurance policies are only applicable when the damage comes about directly as the result of flooding. Otherwise, they may not be able to qualify for a claim.

Moreover, separate deductibles apply for building and contents. Consumers have different choices when it comes to amounts. Apparently, those who opt for a higher deductible will end up paying lower premiums. Lenders can help determine the maximum deductible amount applicable for each consumer.

The federal government demands that all residential and commercial properties located in high risk flood areas with existing mortgages have flood insurance. On the other hand, the government recommends that property owners located in moderate risk areas get insurance.

This is because NFIP is a federal program that is only made available through leading insurance providers. This means the rates remain the same with all insurance companies or agents. However, there are some factors that may influence the rates. This includes the property location and its date and type of construction. Nevertheless, all policies have ICC Premium and Federal Policy Fees.

In addition, consumers may be eligible for up to a 45 percent discount if they come from communities that participate in the Community Rating System. This is applicable even if they are located in high risk flood areas. Meanwhile, those that come from low to moderate risk areas may get up to a 10 percent discount.

Typically, policy holders have to wait for 30 days after the purchase before the new policy takes effect. However, there are a few exceptions. This includes choosing an additional insurance amount as an option on the renewal bill. Another exception is when the lender finds out that a loan requires flood insurance. Flood insurance also takes effect before the 30-day waiting period when a building has been designated in the SFHA where the policy was purchased within 13 months after the map revision. There is also an exemption when the insurance was purchased for the purpose of making, renewing or extending a loan.

NFIP
http://www.floodsmart.gov/floodsmart/

USGS
http://ks.water.usgs.gov/pubs/fact-sheets/fs.024-00.html