How Would You Know If You Need Flood Insurance?
The purpose of flood insurance is to provide benefits to policyholders if their property suffers water damage. Homeowners most fear damage to the property due to hail, tornadoes, fires or burglary. Many don't consider flooding and the damage it can cause to their property as something that is likely to happen. However, the risk remains. It is therefore important to understand what puts your home at risk for flood damage and whether it's worth paying a fairly large insurance premium to protect your assets.
Other People Are Reading
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Misconceptions
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Many people believe that their homeowner's insurance policy covers flood damage. However, a general policy does not. Typically you must add flood insurance through a separate provider or specifically request it as an additional element to your home owner's policy. Additionally, when compared to some of the other extras you can request as home owner's policy benefits, adding flood insurance can be rather expensive because the damage from a flood is so extensive.
Types
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There are three main types of flood insurance policies. The first covers just your belongings, which is ideal for renters. For example, if your house flooded, then the benefits would only cover the contents of the house, but not the structure. The second type of flood insurance policy covers the building only, which includes the foundational elements and equipment and appliances that are necessary to support the building, such as your furnace, water heater, air conditioner and circuit breakers. An all-encompassing policy, often called a Preferred Risk Policy, covers damage to both the building and your belongings inside.
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Geography
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In order to be eligible for the National Flood Insurance Program (NFIP), you must live in a community that participates in it. Check out the Resources link below to find out if you qualify. Otherwise, you will have to obtain flood insurance through an insurance agent. It's important to note that not everyone needs flood insurance. Generally, you only need it if your house is in a flood plain. Being on a flood plain increases the chances of a flood damage to your house by 26 percent over the lifetime of a 30-year mortgage.
Factors
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While the most common cause of a flood is excessive rain, followed by the overflow of rivers, streams and/or culverts into neighborhoods and towns, you should consider several other possible contributing factors. Even if your property is in a low risk area, flood damage can still occur due to poor drainage systems, broken water mains or even rapid snowmelt. Houses located on an incline, such as a hillside, can suffer damage from mudflow, which results from flooding or excessive rain. Additionally, houses on the coast can suffer flood damage due to hurricanes and other acts of God (New Orleans in the aftermath of Hurricane Katrina is a prime example). Therefore, even if your home is not in a high risk location (flood plain) you should still consider purchasing flood insurance as an extra precaution.
Considerations
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It is important to purchase or maintain flood insurance, even if your property suffered damage in the past due to flood. In the case of a home built in a Special Flood Hazard Area (SFHA), after suffering flood damage and receiving a federal grant or loan as disaster relief, the government requires you and future owners to maintain flood insurance during the lifetime of the building. If you fail to maintain flood insurance on such property and damage occurs again, the government reserves the right to deny you further disaster relief.
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References
Resources
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