The chance of a flood is a risk most homeowners and renters don’t even consider. Most people live in areas with low to moderate flood risk, and never even consider the possibility of costly flood damage to their home or personal possessions.
The situation is even worse for those in at-risk areas. Nationally, only 20% of homes at risk for flood carry adequate flood insurance. Often, the only people who consider flood insurance are those in high-risk areas, making it nearly impossible for insurers to make flood policies work.
A healthy insurance system depends on premium payers who will, on a mass scale, never actually file claims. Those premiums provide the capital to pay for claims filed by other individuals who incur damages covered by the policy. But in the case of floods, the number of buyers isn’t high enough to cover the cost of damage claims.
Imagine if the only people who purchased health insurance were those at risk for very costly diseases. There simply wouldn’t be enough money to cover costs. That is, more or less, the situation many in flood-prone areas are faced with.
Considering Flood Protection
If you are a homeowner, it may be worth your while to consider flood protection. According to the National Flood Insurance Program (NFIP), even a few inches of flooding can cost thousands of dollars in damage.
Last year, the average flood damages claim was $33,000, and 25% of all claims occurred in low- to moderate-risk areas. For homeowners in such low- to moderate-risk areas, blanket policies are typically available through the NFIP. These policies provide building and contents coverage in one policy at one rate, starting at a low $119 per year.
High Risk Homeowners
For those homeowners living in high-risk areas, a standard rated flood insurance policy is the only option. This means that potential insurers will consider certain risk factors before determining the annual rate of your flood coverage.
Per the NFIP, these factors include:
- The year the building was constructed
- Building occupants
- How many floors the building has
- Where in the building contents are stored
- The risk of the relevant flood zone
- In newer buildings, the location of the lowest floor in relation to elevation requirement on the flood map
- The deductible the policyholder chooses and the amount of building and contents coverage
If you live in a high-risk area and your mortgage in insured by the FHA or VA, you will be required to purchase flood coverage.
Flood Insurance for Tenants and Condo Owners
While tenants generally needn’t worry about building coverage, it’s wise to consider a contents insurance policy. Contents only coverage begins at $39 per year in low- to moderate-risk areas. Premiums in high-risk areas vary.
Insurers use the same variables to determine adequate premiums for contents only coverage. Because these policies do not cover damage to the home, and insure the policyholder for smaller amounts of damage, the premiums are much lower than comprehensive building and contents coverage.
Our advice is similar for those who condominium units home. If you own your condominium unit, it’s not unwise to consider building and contents coverage. Renters or condominium units should also consider contents coverage.
Questions to Ask about Flood Insurance
When it comes time to talk to an agent, come armed and ready with any questions you have regarding policy options and requirements. The NFIP suggests the following:
- What flood zone do I live in? What is my property’s flood risk?
- Is flood insurance mandatory for my property? Will the lender require it?
- Even if flood insurance isn’t required by my lender, do I still need it?
- Do I qualify for a Preferred Risk Policy?
- Does my community participate in the NFIP Community Rating System (CRS)? If so, does my home qualify for a CRS rating discount?
- What will and won’t be covered against flood damage?
- Will my flood insurance policy be backed by the federal government?
- How much coverage should I get for my building and for my contents?
- What options do I have to reduce my premium?
- Are there additional expenses or agency fees I should be aware of?
- Will my policy provide Replacement Cost Value or Actual Cash Value? And what is the difference between the two?
- Who should I call if I have a flood claim?
- How can I pay for my policy?
- How will my policy be renewed?
If you do live in a high-risk area, take whatever steps you can to limit flood damage. Keep valuable possessions, such as musical instruments and electronics, on higher floors of your home. If this isn’t practical, elevate these possessions above the floor.
When the flood warnings come, move your antique cello onto a coffee table or counter top, for example. Even if you have contents coverage, it’s always more convenient to limit damages and save yourself the trouble of a higher claim and shopping to replace damaged goods.
Published or updated April 5, 2013.