The Home Buyer's Korner

Information presented should be used for educational purposes only.

August 1st, 2014

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Flood Insurance

flood

So you’ve got home owners insurance and assume your property is covered for any mother nature throws at you, well not so fast. Not all home owners are aware that home owners insurance doesn’t cover damage related to flood.  If your property is located in a flood zone you and your lenders will want your home to be covered by flood insurance.

Floods these days are one of the most common hazards in the US, costing billions of dollars in damage to homes and other properties annually. Flood insurance policies are commonly made available to homeowners in flood-prone areas.

The majority of home owner’s insurance policies cover some form of water damage, from leaking faucets to bursting water pipes. However, home owner’s insurance doesn’t cover water damage resulting from flooding of rivers or sewers that cause water to ruin a home.

Specific flood protection is provided by the National Flood Insurance Program (NFIP), which is run by the Federal Emergency Management Agency (FEMA). Standard flood insurance policies cover “direct physical damage” to a home resulting from floods. A separate policy often must be purchased to protect the belongings inside the home. Homeowners can normally buy up to $250,000 in coverage for the home, and up to $100,000 in coverage for possessions and even renters are permitted to purchase flood insurance to cover their possessions.

Flood insurance isn’t sold by FEMA directly, but sold to customers through private insurance agencies. Premium rates are determined by the government and they remain consistent from one insurer to the next.

How much a homeowner pays for their own specific flood insurance depends on a number of factors, including how prone the neighborhood is to floods and how much coverage a homeowner wants.

If life throws you a curveball and you need to file a claim it’s much like any other insurance claim. Once you file a claim the damage will be analyzed by an adjuster assigned by the insurance company. A “proof of loss” form will need to filled out and submitted to the insurer normally within 60 days of the flood occurrence.

It’s necessary to find out if your home is eligible for flood insurance before buying and if you need it. For home to be eligible the community needs to enforce floodplain statutes to lessen the chances of flood damage and FEMA ensures that such regulations are followed. Only those homes in a community that participates in NFIP can buy insurance – today, about 20,000 communities across the country participate in this program.

FEMA offers maps that outline what areas are at high risk for floods and those that are at moderate-to-low risk. The law requires homeowners to have flood insurance if the properties are located in a high-risk zone and have a federally-backed mortgage. This is because properties located in these high-risk areas have a 26 percent chance of suffering flood damage during the 30 years that it would take to pay off a mortgage.

Homeowners are not required to buy flood insurance if they reside in a moderate-to-low-risk zone, though it may be a good idea to purchase it anyway and the cost is relatively low compared to the risk. Homes and other properties outside high-risk areas make up over 20 percent of NFIP claims.

Bottom line, even if you don’t live in a high-risk zone, it doesn’t mean your home won’t ever get flooded. Consider wisely if you’re given the option to purchase flood insurance or not.

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