Purchase flood insurance

Overview

Flood insurance, while not a form of mitigation, is an important strategy for effective flood risk management that can protect the policy holder from devastating financial loss. Flood insurance is not only available to property owners but also to renters – home, apartment, and commercial. Without flood insurance, the property owner (or renter) must cover the cost to clean up, repair or rebuild a structure or replace lost belongings on their own; there are limited financial support options available post-flood. The average FEMA Individual Assistance grant, which is only available to qualified individuals in the event of a flood disaster large enough to lead to a presidentially declared disaster and has strict eligibility requirements, amounts to only $5,000, whereas the average flood insurance claim payout is $30,000, and does not require a federal disaster declaration.

Most homeowners, business, and renters insurance policies do not cover a property for flood damage. Flood insurance policies must be obtained separately through the National Flood Insurance Program (NFIP) or through private insurers. Flood insurance through the NFIP is subsidized by the federal government. When reviewing your policy, make sure it adequately protects your buildings and personal belongings. While NFIP flood insurance rates are set on a national basis and do not change after claims, policies and premiums vary depending on how much insurance is purchased, what is covered, and the property’s flood risk. Typically, flood insurance through the NFIP covers the building and its foundation, electrical, plumbing, heating, and cooling systems, as well as other key fixtures, such as built-in cabinets, drywall, window blinds, and permanently installed carpeting. You may want to acquire additional contents coverage or sewer backup coverage. If you opt for additional contents coverage, you can claim additional lost personal belongings and appliances, among other items. As with any insurance, higher deductibles are available to reduce the cost of the premium.

For businesses that have already experienced flooding, another option is business interruption insurance, which does not need to be purchased prior to an event and covers lost gross earnings or profits up until business is back up and running.

If you obtain a federally backed mortgage (or other type of financial assistance that is backed by the federal government) to purchase a home or business space within the regulatory floodplain, Mandatory Purchase requires you to purchase and retain flood insurance for the life of the loan. The amount of insurance that must be purchased depends mainly on the amount of financial assistance obtained or the outstanding principal balance of the loan. The maximum amount of flood insurance that can be purchased through the NFIP is $250,000 for homes and $500,000 for non-residential buildings.

Flooding can happen to any property, anywhere, at any time. More than 20 percent of the NFIP’s claims come from areas with only low-to-moderate flood risk. That is why, regardless of whether you are in a high-risk area, it is important to have flood insurance to protect your home or business, property, and savings in the event of flood damage. If you are located in a low-to-moderate risk area and want to opt into flood insurance, you may be eligible for the Preferred Risk Policy, which offers lower rates. Check with your insurance agent about the availability, coverage, and cost of flood insurance for your property.

Next Steps:

1. Contact a local flood insurance representative to learn more and get a quote on your estimated annual premium. (A list of flood insurance providers can be found here.)
2. Review your policy to determine what is and and is not covered under the policy. Is there anything excluded that you would like to have covered? Is additional coverage available for it?
3. Acquire any additional coverage you deem necessary for structures, contents, and unique personal items.

Special Considerations:

• NFIP flood insurance can be purchased at any time, but there is usually a 30-day waiting period for the policy to go into effect.
• NFIP flood insurance is available to those living in areas participating in the National Flood Insurance Program (see if your community participates here), but not to those in Coastal Barrier Resources Systems (CBRS) or other protected areas.
• Private flood insurance may be available if you live outside of an NFIP participating community.
• The federal government requires that homes and businesses located in regulatory floodplain areas be protected by flood insurance if they are backed by a federally regulated lender. Lenders must notify borrowers of their flood risk, prior to closing, if their property is located in a floodplain.