Avoid Getting Soaked

BY ERIK J. MARTIN ON APRIL 17TH, 2017

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Consumers purchase homeowners insurance to safeguard their property from a variety of perils, including fire, wind damage, theft, and vandalism. But they often incorrectly assume that a major water hazard – flooding – is included in their coverage.

Not to worry, you may think: I don’t live in a coastal area, near a dam or levee, or a region affected by hurricanes. But truth be told, it can flood anywhere affected by precipitation. In fact, heavy rainfall, severe storms, and fast-melting snow are significant causes of flooding, as are wildfires and construction and development that can alter natural paths of drainage.

Floods remain the country’s number one natural disaster, accounting for an average of more than $1.9 billion per year in total flood insurance claims between 2006 and 2015; the average flood-related claim today exceeds $46,000, and the top states for flood claims include Texas, South Carolina, Florida, Kentucky, Missouri, Oklahoma, Illinois, Louisiana, Washington, and Indiana.

Whether you currently own or are considering purchasing a residence, experts strongly recommend investing in optional flood insurance, regardless of the area.

“Typically, property insurance policies do not cover flood damage, and this exclusion is often highlighted in bold letters on the declarations page of each policy,” says Gina Clausen Lozier, Boca Raton, Fla., an associate at Berger Singerman law firm. Therefore, in order to be covered for flood loss, property owners must obtain a separate flood insurance policy,” “Separate flood policies generally provide coverage for losses caused by storm surges of tidal water that result in flooding, or the overflow of water from an inland body of water.”

Flood insurance may actually be required if three conditions are met: you buy a property located in a federally designated special flood hazard area, your community participates in the National Flood Insurance Program (NFIP), and your home is or was financed by a federally regulated lender or backed by Freddie Mac or Fannie Mae. Homes located in these high-risk areas have at least a one in four chance of flooding over the course of a 30-year mortgage; but even moderate-to low-risk areas submit more than one in five NFIP claims and receive one-third of Federal disaster assistance for flooding.

Butch Kinerney, marketing and outreach chief for the Federal Insurance and Mitigation Administration (FIMA), which manages the NFIP, says NFIP flood coverage is offered by a number of private insurance companies or may be purchased directly from the Federal Emergency Management Agency (FEMA).

“The first step should be to speak with your current insurance agent to determine if you can purchase flood insurance from them. You can also visit FloodSmart.gov to review a list of agents selling NFIP flood insurance in your area and to look up an estimate of the flood risk for your structure,” says Kinerney, who additionally suggests visiting msc.fema.gov to review the Flood Insurance Rate Map for your area and Ready.gov to prepare your home and family against flood threats.

The annual premium charged for NFIP flood coverage is based on the flood risk for your property: the more at-risk your structure, the higher the premium. The average policy premium was approximately $700 in 2015, per the NFIP.

“Premiums in minimal to moderate flood zones start as low as $171 per year through a preferred risk policy (PRP). This would provide $20,000 in coverage on the building and $8,000 on the contents for residential buildings that house one to four families as a primary residence without a basement or enclosure,” says Cynthia DiVincenti, vice president of government programs for Aon National Flood Services in Kalispell, Mont. “In zone AE, a high-risk area, a flood policy providing maximum coverage of $250,000 on the building and $100,000 on its contents, for a primary residence, would currently be just under $1,200. This is based on a so-called ‘+1 elevation difference,’ which is the difference between the base flood elevation and the lowest floor elevation.”

Kinerney adds that everyone – even when not obligated – should consider purchasing flood insurance.

“It is incredibly important that homeowners and buyers understand the flood risk for their homes and businesses and what the cost of repairing and rebuilding after a flood would be,” he says.

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