What Affects Flood Insurance Premiums?
Flood insurance is available to homeowners, renters, condo owners/renters and commercial owners/renters. There are three main factors used to calculate the cost of flood insurance: the amount of coverage, the age of the home and the flood zone in which the home is located. The most affordable flood insurance is provided through the National Flood Insurance Program. In order to purchase flood insurance through the NFIP, the community in which your home is located must participate in the program.
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Flood Zones
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The flood zone your property is in is one of the most important factors affecting insurance rates. Your flood zone is determined through the Federal Emergency Management Agency (FEMA), the agency overseeing the NFIP. Through a flood insurance study, FEMA analyzes various hydrological and historical data to define flood zones. Areas are classified into three zones: high-risk areas, moderate-to-low-risk areas and undetermined-risk areas.
Insurance Requirements
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Regular home insurance does not include flood insurance. If your home is in an area deemed "high risk" by FEMA, then you will be required to purchase flood insurance if you pay for your home with a federally insured mortgage. The high-risk zone is further divided into sub-zones, according to the precise degree of risk, with coastal zones the highest-risk of the sub-zones. Insurance is not required in the low-to-moderate risk category, however, it is highly recommended. The program is not available to homes in the undetermined-risk zone.
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Moderate-Low Risk
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Most homeowners in the moderate-to-low risk area are eligible for coverage at a preferred rate. Preferred Risk Policy premiums are the lowest premiums available through the NFIP. As of January 2011, policies covering building and contents started at just $129 per year.
High Risk
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Standard-rated policies are the only insurance option for homes in the high-risk zone. These policies offer separate building and contents coverage. The rates in the high-risk zone vary widely and depend on the following factors: how old your home is, how many people live in your home, how many stories your home is, the location of valuables in your home, the sub-zone your home is in and the deductible and total insurance policy you want. Policies in this zone range in price from $136 to $5,903 per year. All rates are available on the FloodSmart website (see Resources).
Maximum Coverage
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The maximum amount of insurance you can purchase through the NFIP is $250,000 of building coverage and $100,000 of contents coverage. As of January 2011, the annual premium for this top policy in the high-risk zone was $1,636 per year. In the coastal subclass high-risk zone, this same coverage costs $5,903 per year. If you feel that your home and contents exceed this value, you will have to purchase additional coverage, outside of the NFIP.
Warnings
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If your property is in the undetermined-risk zone, insurance through the NFIP is not available. You will have to purchase the insurance privately, and the rates will be affected by the uncertainty in risk of flooding.
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References
Resources
- Photo Credit flood image by Gail Ranney from Fotolia.com
