What YOU need to know about Flood Insurance

 As the warmer weather settles here in Eastern Iowa, it’s about the time we start concerning ourselves with the river levels. That means considering whether we have the level of protection we need in case of a flood.

Whether or not you decide to purchase flood insurance should be determined by considering the value of your home and possessions, as well as the risk of flooding in your area.

Some homes that are located in certain high-risk areas, called “Special Flood Hazard Areas,” may be required to carry flood insurance.

According to insurance professional DonnaLyn Geigerich, Red Bank N.J., damage caused by “seeping water, snow melt, rising bodies of water like lakes or rivers, and any time of rising ground water,” is generally not covered by standard homeowner’s insurance, but damage caused by driving rain usually is.

Purchasing separate flood insurance offers protection where the standard homeowner’s policy falls short. Consider your home’s location and the value of your possessions; you may already have adequate coverage. If not, flood insurance could be on average an additional $600 per year.

How to Get Flood Insurance

If your home is in a participating community, all you need to do is to purchase coverage through the National Flood Insurance Program (NFIP). The NFIP, a part of the Federal Emergency Management Agency (FEMA), will insure a home no matter how high or low the flooding risk may be with varying premiums. To cover the home’s contents only in a low-risk area can be as little as $39 annually, however covering the building and its contents in a high-risk coastal area can be as high as $6,000. Maximum coverage is $250,000 for damage to the structure and an additional $100,000 is available to cover the contents.

Lenders may actually require homes located in the Special Flood Hazard Areas to be insured, especially if the financing comes from a federally insured mortgage. It is determined that homes in these areas have a 26% chance of flooding at some point during the 30-year mortgage.

What About your Basement?

Basements are tricky, as the building policy will provide coverage for the structure, such as the drywall and ceiling tiles, and the contents policy will cover the furnace and appliances. But neither will cover home finishes like the carpet or paneling or personal possessions such as clothes or artwork stored there.

Cost vs. Benefits of Flood Insurance

The first step is to check into your home’s risk of flooding, says Etti Baranoff, associate professor of risk, insurance, and finance at Virginia Commonwealth University. If you are new to the area and don’t know if the home has flooded in the past, you can check out the FEMA flood maps online.

After you have assessed your risk level, Baranoff recommends considering your potential losses if your home floods. The NFIP says the average claim is $33,000, however even a mere inch of water can cause thousands of dollars in damage to a home and its contents.

Damage done by one inch of flood water:

Source: National Flood Insurance Program

“Look how many people buy the insurance coverage on their cellular phones…when it’s a major catastrophe that can really cost you,” Baranoff says. “If you’re the type of person who buys the cellular phone insurance, you want to be sure you’re acting within your risk tolerance.”

To get started evaluating your liability, create an inventory of your possessions as well as the estimated cost of repairing or rebuilding your home. It may be the case that the coverage limits provided by the NFIP aren’t enough to adequately cover your home and possessions, in which case you can discuss private flood insurance with your agent.

Additional Resources for Home Owners

If you find yourself victim of a flood disaster, there is some government assistance available. The IRS will grant extra time for filing tax returns (see IRS Publication 547, “Casualties, Disasters, and Thefts,” for more information).

If the flooded area has been declared a Federal Disaster Area, home owners may qualify to take a low-interest loan from the Small Business Administration (don’t worry, you aren’t required to own a small business to qualify.) The loan limits are $40,000 for clothing, furniture, cars, or appliances, and $200,000 to repair or replace a primary residence to pre-flood condition.

When considering the SBA low-interest loan, keep in mind that in certain areas of higher risk it may be a prerequisite that the home already have been covered with flood insurance.