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Flood Insurance

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By A. J. Shah

Many homeowners and business owners aren’t prepared for the most common type of natural disaster: floods. Many typically think flood insurance is just for people and businesses on the coast or along the banks of a river. However, flooding frequently occurs because of storms, heavy rains, or water main breaks.  In fact, unless you live or have a business on the top of a mountain, just about any area is susceptible to flooding.

Heavy rains can make instant rivers where there wasn’t even a trickle before. All it takes is for a big storm to come after the ground is already saturated. Or you could simply read the stories about some of the people who experienced Hurricane Katrina and had inadequate or no flood insurance. In the Katrina-hit area, only 1/3 of homeowners and 1/4 of businesses carried a federal flood policy. Statistically, according to the Federal Emergency Management Association (FEMA), 20 percent, or 1 in 5, of flood claims from areas that have low to moderate flood risk.

By securing flood insurance, you have the option to protect two types of insurable property: building and contents. The first type covers your building, while the latter covers your possessions; but neither covers the land they occupy. 
Flood insurance is not optional for everyone. If you live in a Special Flood Hazard Area (SFHA) or high-risk area and have a federally backed mortgage, your mortgage lender requires you to have flood insurance. If during the life of the loan, the maps are revised and the property is now in the high-risk area, your lender should notify you that you must purchase flood insurance.

For high risk areas of flooding, Congress has mandated federally regulated or insured lenders to require flood insurance on properties.

Residences and Businesses in High-Risk Areas
Homes and buildings in high-risk flood areas with mortgages from federally regulated or insured lenders are required to have flood insurance. These areas have a 1% or greater chance of flooding in any given year, which is equivalent to a 26% chance of flooding during a 30-year mortgage. According to the National Flood Insurance Program (NFIP), these claims have averaged over $33,000 each over the past ten years, and the average annual U.S. flood losses from 2001-2010 were more than $2.7 billion.

Residents and Businesses in Moderate-to-Low Risk Areas
Homes and businesses located in moderate-to-low risk areas that have mortgages from federally regulated or insured lenders are typically not required to have flood insurance. However, flood insurance is highly recommended because anyone can be financially vulnerable to floods. People outside of high-risk areas file over 20% of NFIP claims and receive one-third of disaster assistance for flooding. When it’s available, disaster assistance is typically a loan you must repay with interest.

   In comparison to other forms of homeowners and property insurance, flood insurance is significantly less expensive. Part of the reason for that is flood insurance is underwritten by the National Flood Insurance Program (NFIP.) A flood protection plan can be purchased from most independent insurance agents, so you can probably get a policy from the same company you regularly deal with. The NFIP is under the administration of FEMA so rates are fairly consistent no matter where you live in the country.
   However, there are variables that apply, such as proximity to a floodplain. If you live in a moderate-to-low risk area and are eligible for the Preferred Risk Policy, your flood insurance premium may be as low as $129 a year, including coverage for your property’s contents. The closer you live to a flood zone the higher your rate. There is one difference, the amount of coverage. If you want to make sure you are fully covered, the cost of your policy will depend on the extent of the coverage you choose.

   The National Association of Insurance Commissioners (NAIC) found that 33 percent of household hold the false belief that flood damage is covered by a standard homeowner’s policy. FEMA states approximately 50% of low flood zone risk borrowers think they are ineligible and cannot buy flood insurance.

Anyone can buy flood insurance as long as their community participates in the NFIP, even renters. Unless one lives in a designated floodplain (high-risk) and is required under the terms of a mortgage to purchase flood insurance, flood insurance does not go into effect until 30 days after the policy is first purchased.

   If you are eligible, you must purchase a separate flood insurance policy through an insurance company that participates in the National Flood Insurance Program (NFIP). Flood insurance is available for residents of approximately 19,000 communities nationwide.

   According to the FEMA flooding is consistently the leading cause of property damage in the United States. Natural disasters can’t be prevented, but you may be able to better deal with the results if you’re prepared. Getting your affairs back in order after a flood has disrupted your life or business may be done in a timely manner if you carry flood insurance.

   You may visit www.floodsmart.gov/floodsmart/ regarding flood insurance, flood zone maps, flood plain maps and flood information. You can also contact your insurance agent or company to find out more about federal flood insurance.
 

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