Why Flood Insurance is Necessary

An ounce of prevention

CoreLogic highly recommends voluntarily obtaining a flood insurance policy as a preventative measure, but the federal government actually requires flood insurance in certain situations:

1. Purchase of a home in a high risk flood zone

When you obtain a mortgage from a federally-backed lender, they are required by law to determine whether your property is located within a high-risk flood zone. If it is, they are also required to ensure that flood insurance is purchased and maintained on the property. In some cases, although they are not common, your lender may require flood insurance even if the property is outside of a designated high-risk flood zone.

2. A flood map change alters your flood status

Flood zones may undergo many changes over the course of time-new development, construction, population growth and flood mitigation efforts all have an impact on flood zone boundaries. To keep up with a community's ever-changing landscape, FEMA is continually updating and revising its maps to better reflect the community's actual flood risk. So it's possible that you may experience a flood map change sometime during your homeownership. You may suddenly find yourself in a high-risk flood zone, when you weren't in one previously. If your lender determines that this has happened, then they must require flood insurance to protect their collateral.

3. Federal disaster assistance has been previously received for flood damage

Properties that have received disaster assistance from the Small Business Administration (SBA) after a flood are required to have flood insurance coverage until the loan on the property is paid off. If there's no flood insurance and another flood damages the property, federal disaster assistance will be denied.

Flooding is the #1 natural disaster.

Most homeowners obtain insurance to protect their homes from disasters without knowing that damage from the nation's #1 natural disaster-a flood-may not be covered through their homeowner's insurance policy. Most of the time, the only way to protect your home from a flooding disaster is to obtain a separate flood insurance policy. Recovery from flood damage without insurance can be not only expensive, but also emotionally taxing. Even disaster assistance from the government generally isn't free; it typically comes to you in the form of a small business loan, which must be paid back-with interest. And that's available only if the flood is declared a disaster area by the President, which typically happens in less than 10% of natural events. (Source: FEMA publication "Flood Map Modernization: Frequently Asked Questions by Homeowners")

Because hindsight is always 20/20

Even if you live in a home that lies outside of a designated high-risk flood zone, you're still not off the hook from the risk of flooding. Roughly 25% of all claims paid by the NFIP are for policies in low- to moderate-risk communities. Are you willing to run the risk? (Source: FEMA Mandatory Purchase of Flood Insurance Guidelines September 1999)

Flood waters are rude. They don't pay attention to the boundaries on a flood map. Flooding isn't limited to rivers and lakes overflowing or tidal surges from tropical storms. We've seen flood damage occur when rainfall comes suddenly after months of dry weather in the middle of the desert, when snow melts that has nowhere to go but into people's homes, or even when a storm drain backs up and prevents rain from draining properly, flooding the street and leading to water seeping into houses.

And this has all happened in homes across the country that are outside of designated high-risk flood zones, leaving residents to replace soaked drywall, rugs, clothing, and water-damaged furniture and appliances without the aid of insurance payouts to fund their damage recovery.

Timing is everything: you can't make a last minute purchase of flood insurance.

If the creek is rising, before you call your insurance agent, go buy sand bags. By the time you get wind of a flood forecasted for your area, it's usually too late to protect yourself with flood insurance. In most circumstances, there's a 30-day waiting period before flood insurance goes into effect. There are some exceptions to that rule, but you'll want to contact our insurance agency at (800) 862-2070 for more information.

Homeowners and Flood Coverage

Fact: Most homeowners insurance policies do not cover flood damage.

Unfortunately, almost all standard homeowners policies won't cover flood damage, even if it's the result of a hurricane. From a financial perspective, it's understandable: the catastrophic risks associated with floods are costly, and historically only people who knew they were likely to be flooded bought flood insurance. Insurance providers either stopped underwriting flood insurance or raised premiums beyond the reach of most people.

Luckily for homeowners, the federal government stepped in and created the National Flood Insurance Program (NFIP). The NFIP made federally-backed flood insurance available for reasonable premium rates. For example, for a property in a high-risk flood zone, the average premium is around $400 a year or $33 a month, for about $100,000 of building coverage. In lower-risk zones the premiums can go as low as $112 a year or less than 30 cents a day for $20,000 in building coverage and $8,000 in contents coverage. By comparison, a $50,000 federal disaster assistance loan can cost you about $240 a month at 4% interest over 20 years. (Rates as of 9-06)

The benefits of flood insurance

When you're a flood insurance policyholder:

• Flood insurance compensates you for covered losses.
• You can depend on being reimbursed for covered flood damages, even if the President does not declare a federal disaster.
• You do not have to repay a loan, as you might with many federal disaster relief packages. Your covered losses are paid based on the policy provisions. Best of all-there's no waiting in line to apply for disaster assistance.
• You can count on your covered loss to be paid in the event of a flood loss because NFIP flood insurance is backed by the federal government.
• Your agent can help you handle your claim quickly, so that you will not have to put your life on hold if your property is damaged by a flood. You can even request a partial payment immediately after the flood.

Get flood insurance today.

Considering the prohibitive cost of a disaster assistance loan or depleting your savings to replace your valuables, household and personal items, and repairing your home-all while continuing to pay your mortgage-the cost of flood insurance becomes minimal by comparison. We encourage you to get covered today, especially since in most cases, there's a 30-day waiting period before your flood insurance goes into effect. Don't wait for an impending flood to get the financial protection of flood insurance. Contact our insurance agency at (800) 862-2070 for more information.

What Flood Insurance Covers

What's covered by flood insurance-and what's not.

Rating a flood insurance policy is complicated. So the following covers some of the things we think will be useful for you to know. For more information, download FEMA's National Flood Insurance Program Summary of Coverage, refer to your NFIP flood insurance policy, or contact our insurance agency at (800) 862-2070 for information.

Flood insurance is different.

Most of us know how a typical homeowners insurance policy works-one policy covers both damage to the home and damage to personal possessions. However, NFIP flood insurance is different. Coverage for "Building Property" and for "Personal Property" are separate. This means that to get coverage for both, you will need to purchase each separately. This does not apply for low-risk PRP policies.

 

The following lists provide general guidance on items covered and not covered by flood insurance:

What is insured under Building Property coverage?

• The insured building and its foundation
• The electrical and plumbing systems
• Central air conditioning equipment, furnaces, and water heaters
• Refrigerators, cooking stoves, and built-in appliances such as dishwashers
• Permanently installed carpeting over an unfinished floor
• Permanently installed paneling, wallboard, bookcases, and cabinets
• Window blinds
• Detached garages (up to 10% of Building Property coverage). Detached buildings (other than garages) require a separate Building Property policy
• Debris removal

What is insured under Personal Property coverage?

• Personal belongings such as clothing, furniture, and electronic equipment.
• Curtains.
• Portable and window air conditioners.
• Portable microwave ovens and portable dishwashers.
• Carpets not included in building coverage (see above).
• Clothes washers and dryers.
• Food freezers and the food in them.
• Certain valuable items such as original artwork and furs (up to $2,500).

What is not insured by either the Building Property or Personal Property Coverage?

• Damage caused by moisture, mildew, or mold that could have been avoided by the property owner
• Currency, precious metals, and valuable papers such as stock certificates.
• Property and belongings outside of a building such as trees, plants, wells, septic systems, walks, decks, patios, fences, seawalls, hot tubs, and swimming pools.
• Living expenses such as temporary housing
• Financial losses caused by business interruption or loss of use of insured property.
• Most self-propelled vehicles such as cars, including their parts (see Section IV.5 in your NFIP policy).

* Excerpted from The FEMA National Flood Insurance Program Summary of Coverage

Maximum NFIP policy coverage
The maximum amount of coverage available in the NFIP's Regular Program for residential properties is $250,000 on a structure and $100,000 on contents. The NFIP's Emergency Program has lower maximum coverage amounts of $35,000 on a structure and $10,000 on contents.

Insurance payouts: actual cash vs. replacement cost.

Most flood policies will pay claims based on one of two standard methods when it comes to valuing property. Be sure you understand these methods of reimbursement, so there are no surprises when and if disaster strikes.

• Actual Cash Value (ACV) - The cost to replace an insured item of property at the time of loss less the value of its physical depreciation. For example, if your television is 10 years old, you'll receive a payout for its value today, not what it would cost to replace it at today's prices. Some building items are always priced at ACV, such as wall-to-wall carpeting. Be sure to verify with your insurance agent or see your policy for details.
• Replacement Cost Value (RCV) - Pays claims based on today's cost to replace the item or part of the building. This type of coverage is available only on owner-occupied single-family dwellings, and you must have purchased coverage in an amount equal to at least 80% of the full replacement cost of the building or the maximum coverage available from the NFIP. However, an NFIP policy does not pay more than the policy limit, nor is it a guaranteed replacement cost policy.

Deductibles: How deep are your pockets?

Choosing the amount of your deductibles is an important decision. If you purchase both Building Property Coverage and Personal Property Coverage, there is a separate deductible for each policy. To save money upfront, you may consider choosing a higher deductible, but keep in mind that in the event of a loss you'll be required to pay this amount out of your own pocket before flood insurance takes effect. In addition, your lender may need to approve a higher-than-standard deductible. As with car or homeowners insurance, choosing a higher deductible will lower your premium, but it will also reduce your claim payment at the time of loss.

A final note about coverage

Although this is general information about flood insurance coverage, please be aware that your flood insurance policy, your application, and any endorsements, including the declarations page, make up your official contract of insurance. Any differences between this information and your policy will be resolved in favor of your policy. If you have questions about flood insurance, we recommend that you contact our insurance agency at (800) 862-2070 for assistance.

Flood Policy Types

You can purchase NFIP flood insurance even in a high-risk flood zone.

Whether your property is located within a low-, moderate-, or high-risk flood zone, it can usually be insured through an NFIP flood insurance policy if it is located within a participating community. However, there are a few exceptions, such as properties located in a federally protected Coastal Barrier Resources Act (CBRA) area.

Preferred Risk Policy (PRP)
Qualifying for a Preferred Risk Policy has nothing to do with your driving record or your credit score. It's simply a lower cost NFIP policy for properties located in low- to moderate-risk flood zones.

Excess Flood Insurance Coverage
After you purchase an NFIP standard or preferred risk flood insurance policy, you may find that you need additional coverage beyond the NFIP maximum of $250,000 for building and $100,000 for personal property contents coverage (emergency program and commercial limits are different). If so, please contact our insurance agency about Excess Flood Coverage.

For complete information about the types of NFIP policies available or to obtain excess flood insurance, we recommend that you talk to our insurance agency at (800) 862-2070 for more information.

Where to Get Flood Insurance

Your agent's experience matters when purchasing flood insurance.

Experience - that's the key factor when it comes to choosing an agent to help you with your flood insurance needs. Rating a flood policy is complicated, and even a small error in how your policy is written could result in your paying an incorrect premium for the coverage you need.

Evaluation - you probably want to know exactly how much it will cost to protect your property from flood. So we highly recommend that you discuss your flood risk, your risk tolerance, and what you can afford with one of our licensed insurance professionals, so you can determine your individual coverage needs and, ultimately, your cost.

No rate shopping required.

The premium charged for an accurately rated NFIP policy will be the same, regardless of whom you purchase the policy through. However, what you need to find is a licensed agent who has plenty of experience with flood insurance. Selling homeowners coverage is not the same as flood coverage, and for many agents, dealing with a flood policy is a rarity. If you experience a flood, an improperly rated policy can be your second disaster. Contact our insurance agency at (800) 862-2070 and we will be glad to review your flood insurance needs.

Policyholder preparedness is the key.

• Put your policy and essential information in an area that you can get to quickly and easily.
• Store your flood insurance policy information with your homeowners insurance information for easy retrieval.
• Include a copy of your insurance policy, as well as the name and contact information for your agent and the associated insurance company.
• Obtain photos or video of your possessions and keep with your itemized list.
• Store vital information in a location other than your residence, such as your bank's safety deposit box.

Grandfathering a Policy

"Grandfathering" can save you money.

Urban growth, changes to river flows and coastlines, and even flood mitigation efforts like drainage systems and levees can change a community's flood risk. The accurate presentation of information on the flood map is essential so that homeowners are aware of emerging flood risks and insurance companies are able to determine appropriate rates for flood insurance coverage. That's why part of FEMA's responsibility is to continually update its flood maps to accurately reflect those changes in a community's flood risk.

When map changes take effect, you could find that while you may have been out of a high-risk flood zone, now you're in one, or vice versa. To help those who suddenly find themselves in a high-risk zone-and faced with higher insurance premiums-FEMA provides a process known as "Grandfathering." This rule acknowledges policyholders who have maintained continuous flood insurance coverage or homeowners who have built in compliance with their community's flood maps.

Maintaining continuous flood insurance coverage keeps you in the same flood zone.

As a current flood insurance policyholder, this enables you to obtain a more favorable premium based on the lower-risk zone even though your property has been re-mapped into a higher-risk-and thus higher-premium-flood zone. Remember, this only applies if you have flood insurance coverage in place before the effective date of the new map affecting your property. This grandfathered zone can be passed along to a new owner in the event of a sale.

Even without continuous coverage, you can still save on your premiums.

If you don't have flood insurance in place before the map changes, you may still be eligible to have your premium calculated on the flood zone shown on the old map if your home was built in compliance with the flood map in effect at the time of construction. In either scenario, the homeowner who qualifies for a grandfathered policy can chose either the current zone or the grandfathered zone, whichever results in a lower premium. The grandfathering rules can be confusing, so contact our insurance agency at (800) 862-2070 for more information.