IRMI Tip of the Month: Do You Really Need Flood Insurance?

According to the Federal Emergency Management Agency (FEMA), flooding can cause several billion dollars of property damage in the United States each year. If you are like many homeowners, however, you may be unaware that the standard homeowners insurance policy you buy does not cover flood losses. You may believe that you have a low risk to this peril but FEMA reports that approximately 25 percent of all flood claims occur in communities in which flooding is deemed to be a low to moderate risk. So do you really need a separate flood policy? The following tips and ideas may prove helpful in answering this question.

• Contact your insurance agent to see if you live in a community that participates in the National Flood Insurance Program (NFIP), a prerequisite in order to qualify for flood insurance. Participating communities must agree to adopt and enforce certain floodplain management regulations, including building construction and zoning laws that minimize the risks of flood damage.
• Ask your insurance agent to see if you are in a floodplain. Or, if you prefer, go to www.floodsmart.gov and select “What’s Your Flood Risk?” which will ask you to enter your home address. This Web site will then specify whether you are in a low, moderate, or high risk area.
• Consider purchasing flood insurance even if you are in a low-to moderate-risk community. In these areas, you may be eligible for the Preferred Risk Policy, with premiums as low as $112 per year including coverage for your personal property.
• Note that a flood policy does not take effect until 30 days after you purchase the coverage. Thus, if the local meteorologist announces a flood alert for your community and you try to purchase coverage, it is already too late.
• The maximum limit of insurance in the NFIP for your home itself is $250,000. If your residence’s value exceeds this amount, ask your insurance agent about excess insurance for losses above the federal policy’s maximum limits.
• Don’t assume that the government will bail you out if you suffer a flood loss and don’t have a flood insurance policy. That decision is a gamble you may not win. Remember that federal disaster assistance, if available, is usually a loan that must be paid back with interest.
• Discuss all the pros and cons of flood insurance with your agent before making your final decision.

Get more personal lines insurance and risk management tips and ideas from IRMI

Copyright 2008, International Risk Management Institute, Inc.

Note from the Author (Nov. 14, 2014): After two years of work, we've entirely redesigned our website! Using SquareSpace, we were able to import this blog and we are continuing our blog there. To find the current version of this article and our new articles, click HERE.

Flood, Mudslide, and Earthquake Exclusions—What You Don’t Know Can Hurt You

Why aren't these perils covered in a standard (unendorsed) Homeowner’s/Renter's policy? How can I get these covered? Do I really need to have these perils covered?

Thousands of homeowners are surprised each year by flooding, and some of them are even more surprised when their insurer denies their claim! Similar scenarios happen for both earthquakes and mudslides, too. What many homeowners don’t realize is that their standard Homeowner’s/Renter's policies do not cover these perils!

The reason these perils aren’t covered is because they are typically part of catastrophes, and catastrophes are often hard to cover by a non-government entity. The typical insurer simply doesn’t have the financial capability to insure everyone in a flood zone. That’s why programs such as the National Flood Insurance Program (NFIP) were made. So there are certain parts of the U.S. that are drastically susceptible to floods, mudslides or earthquakes, and those places are where government programs really come in. The rest of the United States is in low to medium risk zones, which can often be insured by private insurers--but only by endorsement! Remember that no standard form of the Homeowner’s or Renter's policies will cover any of these perils!

So if you’ve gone this long without these coverages, do you really need to insure them now? Flood maps and fault maps are available online, and for those in Nebraska, we have a low to moderate risk of flood, mudslide, and earthquakes (the fault that runs through Nebraska hasn’t been disastrously active--yet). Coverage for these perils usually don’t cost too much to cover, and might keep you from having a claim denied some day.

A note about flood insurance: covering your home for the peril of flooding is a broader coverage than you might think. It doesn’t have to be a river, pond, or lake overfilling to cause a flood. Public sewers backing up, water tables rising and causing seepage through your walls, and more are covered by a flood policy—and would otherwise be excluded.

Extras:

• You can find a seismic risk map HERE and other earthquake information. 
• As a FYI, a 2.9 magnitude earthquake just happened back on January 5^th, 2014 from south Lincoln down to Manhattan, Kansas (100 miles west of Kansas City).
• You can find more flood information HERE.

   Note from the Author (Nov. 14, 2014): After two years of work, we've entirely redesigned our website! Using SquareSpace, we were able to import this blog and we are continuing our blog there. To find the current version of this article and our new articles, click HERE.