Should We Pay for Flood Insurance?
It's important for all homeowners to realize that no standard homeowner's insurance policy covers damage by flooding. If you live in a flood-prone area, you should certainly pay for an extra policy to cover this eventuality, and you may want to consider it even if you live in a place where floods are not a frequent risk.
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National Flood Insurance Program
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The NFIP was created by Congress in the 1960s to provide government-backed flood insurance. This is the vehicle still used today by homeowners who want to purchase coverage. These policies are administered by the government but are sold through regular insurance companies. Only certain communities participate in the NFIP however, so coverage is not universally available.
Mandated Coverage
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If you live in a flood-prone area, your mortgage lender will usually mandate that you purchase separate flood coverage. Keeping this policy current will be a condition of your loan. The Federal Emergency Management Agency (FEMA) conducts flood insurance studies to map the flood risk to particular communities, and mortgage companies will base their decisions on coverage on this data.
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Optional Coverage
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If your mortgage company does not require coverage, it's still worth investigating your flood risk and considering insurance. The NFIP website contains link to flood hazard maps and flood insurance rate maps that can show you what the risks are to your community, and how much you might pay for insurance. The NFIP says almost 25 percent of flood insurance claims come from areas considered to be at low to moderate risk.
Costs
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In a high-risk area, such as a coastal community, a year's flood coverage can be as much as $1,000. But in low to moderate risk areas, the costs are much lower --- around $130 per year. According to the NFIP, the average claim for flood damage in the last 10 years has been $33,000. You can insure your home for up to $250,000 and your possessions for up to $100,000 under the federal program.
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