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Flood Insurance

Flood insurance is needed to gain protection against damages caused by flooding.

Flood insurance is a necessity in some parts of the country. [©Jupiter Images, 2009]
©Jupiter Images, 2009
Flood insurance is a necessity in some parts of the country.

Flood Insurance

Flood insurance protects homeowners, renters and business owners in the case of flood damage. According to Flood Smart, a flood is when two or more properties or more than two acres of normally dry land are inundated by mud and/or water. Flooding can occur anywhere it rains and standard insurance policies do not cover damage caused by flooding.

Causes of Flooding

Severe weather like hurricanes and tropical storms can cause flooding, as can any storm that brings with it excessive rainfall. Certain areas of the country, such as the Northwest and Northeast, are at high risk for flooding due to large-scale weather patterns like La Nina and Noreasters. Wildfires, which are prevalent on the west coast and destroy the vegetation, landscape and ground conditions that absorb excess rain, can also lead to flooding. In fact, the ground left behind after a wildfire is unstable and can become a mudflow when hit with heavy rainfall.

Breached levees and drainage system failures can also cause floods. Levees are designed to help control excess water, but erosion and excessive amounts of water can cause them to fail. The construction of new housing developments can also disrupt natural drainage in the area and cause flooding.

Determining Flood Risk

According to the Federal Emergency Management Agency (FEMA), every state is at risk for flooding. Some areas, however, are at higher risk than others. FEMA developed a mapping system in which each geographical areas risk for flooding is determined. Areas are designated as low-risk areas, moderate-risk areas, high-risk areas, high-risk coastal areas or undetermined-risk areas.

High-risk areas are defined as those areas that have at least a one percent chance per year of flooding. In general terms, this means that over a typical 30-year mortgage period, a home in such an area has a 26 percent chance of being flooded. Homes in these high risk areas that carry a mortgage from a federally-regulated or -insured lender are required to have flood insurance. Moderate- to low-risk areas have less than a one percent annual chance of flooding. Flood insurance is not required in these areas, but it is still recommended; in fact, these areas of low to moderate risk generate 25 percent of all flood insurance claims. Undetermined risk areas are areas in which no flood analysis has been conducted.

Who Needs Flood Insurance

Homeowners, renters and business owners are all at risk for flood damage. While a renter does not have an insurable interest in the homes actual structure, their personal belongings are at risk for flood damage. Flood damage is not covered on standard homeowners, renters or business owners insurance policies.

Homeowners typically learn about a homes flood risk when they buy it. Additionally, mortgage companies require proof of flood insurance as a condition of the loan if the home is located in a high risk area. For renters and homeowners buying in a low- to moderate-risk area, who may not be aware of potential flood risks, FEMA has made flood maps available for any address or geographical area in the United States.

Determining Insurance Rates

In 1968, the National Flood Insurance Program (NFIP) was created. The program is administered by FEMA and allows homeowners, renters and business owners to purchase flood insurance through insurance agents. Nearly 90 private insurance companies are partnered with the NFIP and offer flood insurance. Unlike regular insurance rates, which differ from agent to agent and company to company, the rates for flood insurance are set based on the property size and construction type, along with the flood risk of the location where the property is located.

What Flood Insurance Covers

Flood insurance is available for both buildings and their contents, which includes the homeowner or renters personal belongings, generally defined as anything they would take with them if they moved. Items falling under this portion of coverage include:

  • Portable appliances like dishwashers, washers and dryers, window air conditioning units and microwaves
  • Curtains, rugs and carpeting not considered part of the building
  • Clothing, electronics and furniture

By contrast, building coverage includes:

  • The building, including its foundation
  • Built-in appliances like stoves, water heaters and microwaves
  • Plumbing, electrical, heating and air conditioning systems
  • Permanent floor coverings
  • Detached garages

Flood insurance covers physical damage caused by flood to covered property. Each flood insurance policy has specific limits, deductibles and amounts of coverage. In some cases, the mortgage company mandates how much coverage a homeowner must purchase. In other cases, the homeowner or renter decides on the amount of coverage and deductible with the help of an insurance agent. The NFIP provides insured property owners with a flood insurance summary of coverage in order to help them better understand their flood policy.

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