About Flood Insurance

Category : Insurance

Most households in the United States know about the existence of flood insurance. Nearly one third of households either don't believe they need it, or consider it covered under their homeowner's policy.

FEMA (Federal Emergency Management Agency) has stated that nearly half of all homeowners in low flood risk areas think they are not eligible and can't buy flood insurance. What exactly is flood insurance? What does it cover? What are the benefits and are there issues with flood insurance?

Identification
The basic definition of flood insurance is a policy issued by a private or government unit for the replacement of personal property damaged by flooding normally not included in a basic homeowners policy.
Flood insurance is similar to earthquake insurance in that it is a "single peril" type of insurance. It is sold separately from homeowners insurance. Flood insurance covers against losses to buildings and contents, but not the land they sit upon. Coverage is applied in cases of heavy or prolonging rain, coastal storms, snow melt, storm drain blockage, levee failure and other causes.

Misconceptions
Flooding is said to occur when the general or temporary inundation of two or more acres of normally dry land or properties by inland waters. This occurs with the unusual and sometimes rapid runoff of surface water from any source or mudflow.

Significance
Flood insurance is needed because water damage resulting from other natural disasters is most likely not covered by other insurance. This includes hurricanes, landslides, earthquakes and severe storms. Such insurance fills the gap when other policies do not.
The National Flood Insurance Program is a backup insurance for many homeowners when their primary insurer does not provide adequate flood insurance to match the risk factors established for parts of the United States. This program was created to ensure the need for flood insurance was met for those who could not get such coverage otherwise.

Prevention/Solution
Homeowners can purchase flood insurance from private insurers who participate in the federal insurance program. There are more than 85 companies which provide this type of policy in America. In most cases the insurance company which supplied your homeowner's policy can also provide your flood insurance policy.

Features
Flood insurance can be used for both residential and business purposes. Residential coverage allows up to $250, 000 for a home and up to $100, 000 for the contents of the home. Commercial flood insurance goes up to $500, 000 for both property damage and contents.
Based on location, there are two types of flood insurance.
1. Standard Flood Insurance: If your community is a part of the NFIP (National Flood Insurance Program) your building and contents are insurable. You must apply for building and contents coverage individually.
2. Preferred Risk Flood Insurance: If your building is in a low risk or medium risk area, you may qualify for a low cost risk insurance policy. The rates for this coverage start around $119.

Warning
One issue which is present for any type of flood insurance policy your purchase is the waiting period. This waiting period has a time frame of 30 days from the date of purchase before the policy becomes effective.
Two exceptions apply to this rule:
1. if you purchase flood insurance in connection with a building loan and are in a high risk flood zone.
2. if you purchase flood insurance within one year of a map change.