What is flood insurance?
Flood insurance is a type of Home Insurance which covers a dwelling for losses incurred from water damage specifically due to flooding caused by heavy or prolonged rain, melting snow, coastal storm surges, blocked storm drain systems or the rupture of a dike dam. In many places, a flood is considered a vis-à-vis major the event, and the damage or destruction it causes are not covered if you do not take out additional insurance.
Key points to remember
- Flood insurance is a type of property insurance that covers a home for losses incurred from water damage specifically due to flooding.
- Flood insurance policies are available for all residential and commercial properties.
- The Federal Flood Insurance Program (NFIP) provides flood insurance to homeowners in participating communities, as well as those in NFIP-designated floodplains; although the policies are offered by private insurers, the government sets the rates.
- Flood insurance policy pricing is based on the NFIP-designated flood zone in which the property is located, as well as the property’s age, elevation, and number of stories.
- The average cost of flood insurance is $700, but the final amount depends on the location, type, and size of the structure, among other factors.
How Flood Insurance Works
A kind of catastrophe insurancea flood insurance policy is different from the basic risk insurance coverage contained in a home insurance Politics. Standard home insurance covers interior water damage, due, for example, to a burst pipe or weather events such as tornadoes and thunderstorms. However, it generally does not cover destruction or damage caused by flood waters. Homeowners who live in an area prone to this type of natural disaster usually need special coverage.
Flood insurance essentially works like other insurance products: the insured (the owner of the home or property) pays an annual indemnity prime depending on the flood risk of the property and the deductible they choose. If the property or its contents are damaged or destroyed by flooding caused by an external event (rain, snow, storms, collapsed or failing infrastructure), the owner receives in cash the amount necessary to repair the damage and/or rebuild the structure, up to the policy limit. Unlike a standard home insurance policy, flood insurance requires a policyholder to purchase separate policies to cover a dwelling and its contents. A separate cover rider is required to cover the sewer backup if the backup was not caused by rising flood waters.
Flood insurance policies are available for all homes and commercial properties.
Flood insurance is required coverage when applying for a federally backed mortgage for property located in a federally designated flood zone (an area at high risk of flooding due to severe rains, flash floods and mudslides).
The National Flood Insurance Program
The National Flood Insurance Program (NFIP), operated by the Federal Emergency Management Agency (FEMA), provides flood insurance to homeowners in participating communities, as well as those in the plains flood zones designated by the NFIP. Actual insurance policies are issued by private insurance companies, not NFIP or FEMA.
In conjunction with the NFIP, the Federal Emergency Management Agency (FEMA) works to maintain up-to-date maps of floodplains in the United States, the areas most susceptible to flooding.FEMA has worked to update the areas as they change, as well as new, intensifying weather patterns. Areas are divided into subsections for classification purposes. Properties located in Zones B, C and X have a moderate to low risk of flooding. Low risk means less than one percent annual flood risk.
Properties located in areas designated with an A are considered high risk. They are then broken down, with descriptions of potential flood heights and estimated occurrence rates over a 30 year mortgage. Properties that receive a V designation are similar to those located in Zone A. These are high-risk areas that are positioned along the coast.
Some owners might be surprised to find themselves located in Zone D, which indicates that a determination has not yet been made for the area. Floodplain maps are under continuous review (in 2008 the maps were updated for the first time in 23 years!) to account for changing weather patterns and man-made environmental changes such as than dams and dykes.
Flood zone determinations can be found by visiting the Floodsmart.gov website and checking a property’s address against the Flood Map Service Center.
The cost of flood insurance
The NFIP regulates the pricing of flood insurance policies, and the cost will not differ between issuers. If you live in a flood zone or in an NFIP-participating community, the NFIP can help you find an insurance agent.
To determine the cost of your policy, your agent will look at things like your home’s location and structure – its proximity to a body of water and its elevation – as well as the type of coverage (replacement cost value or actual cost value) you selected. Factors such as the designation of the flood zone, the age of the property and the number of floors can all affect prices. A Preferred Risk Policy (a lower cost flood insurance policy) provides coverage for both the building and contents of properties located in moderate to low risk areas for a single price. Some communities that have flood protection measures in place may also qualify for rebates under the NFIP. Therefore, annual premiums can vary considerably.
The average annual cost of a National Flood Insurance Program policy
With NFIP policies, the maximum for residential structures is $250,000 in building coverage and $100,000 in contents coverage. The maximum for businesses is $500,000 in building coverage and $500,000 in contents coverage.
Of course, you can always find cover on your own, especially if you want to insure your property for a higher amount (prices for additional cover will not be regulated, however). It’s often a good idea to start with the company that issues your usual home insurance policy.