By Mary Boone
Most homeowners’ insurance policies do not cover flood damage. That’s a tough pill to swallow when your basement’s filled with sewage-infected water, mold is growing in your walls and all your personal keepsakes have been destroyed, as evidenced by victims of the most recent disaster, Superstorm Sandy.
The good news is that nearly 21,000 U.S. communities now participate in the National Flood Insurance Program (NFIP).
Congress started NFIP in 1968 as a way for property owners to financially protect themselves from floods associated with hurricanes, tropical storms, heavy rains and tsunamis, as well as losses that result from flood-related erosion and mudflows.
The NFIP offers flood insurance to eligible homeowners, renters and business owners. Participating communities agree to adopt and enforce ordinances that reduce the risk of flooding.
Flood insurance cannot be purchased directly from the federal government. Instead, insurance agents and brokers who are enrolled in the NFIP Direct Program are able to write and service insurance coverage through the government’s program. There’s no need to shop around for the best price when it comes to flood insurance. Rates are set and cannot vary from company to company. The rate you’ll be charged is dependent on the age and type of construction of your home, as well as your risk of flood.
If you’re thinking of purchasing a home or business located in a high-risk flood area and you want to get a mortgage from a federally regulated or insured lender, you will be required to buy flood insurance.
Flood insurance is not federally required if you live in a moderate-to-low risk flood area, but insurance experts point out that these areas submit more than 20 percent of all flood insurance claims and receive one-third of federal disaster assistance due to flood-related events.
Flood insurance does not cover buildings that are constructed entirely over water (like a boat house), and structures other than buildings (like fences, retaining walls, swimming pools or driveways). Structural elements and essential elements located within your basement (such as a furnace, electrical circuit box or sump pump) are covered by flood insurance but basement improvements (such as carpet or furnishings) are not. You’ll want to discuss other exclusions with your insurance agent.
Five additional facts you should know about flood insurance:
1. To find out if your community participates in the National Flood Insurance Program, go to www.floodsmart.gov
2. Federal disaster assistance will pay for your flood damage only if your area has been declared a federal disaster area – this occurs in less than half of flooding events. If you are uninsured and end up receiving federal assistance after a flood, you will be required to buy flood insurance to remain eligible for future disaster relief.
3. Flood coverage has its limitations. The maximum flood insurance policy covers up to $250,000 of losses to the structure of a home and pays up to $100,000 for a home’s contents. Additionally, flood insurance only provides for the “cash value” of your belongings. That means if your refrigerator was 10 years old, you’ll only get the value of a decade-old refrigerator to apply toward the purchase of a new one.
4. If your car is damaged by a flood, there’s a good chance your auto insurance policy will provide coverage. According to the Insurance Information Institute, comprehensive auto insurance is, in fact, comprehensive. That means it should reimburse drivers for damage caused by collision with another car or object, fire, falling objects, storms, vandalism or flooding. Be sure to check with your agent about the specifics of your coverage.
5. It typically takes 30 days from the date of purchase for a flood insurance policy to go into effect.