Sunday, June 15, 2008

Flood Insurance

The recent floods in the Midwest give pause to consider flood insurance.

According to Wikipedia's article on flood insurance, only 20% of American homes at risk for floods are covered by flood insurance, and 33% of US heads of household believe falsely that flood damage is covered by a standard homeowners policy. It's not. I would have thought that the number was higher than 33%. Do 2 of every 3 people reading this know that their homeowners policy probably does not cover flooding?

Some people think that the federal government provides assistance for flooding damages. However, federal assistance through FEMA comes only if the President declares a region a disaster area, and even then, most money comes in in the form of a low-interest loan that has to be repaid.

Flood insurance, like earthquake insurance, is “single peril” insurance, sold separately from homeowners insurance. Flood insurance protects against losses to buildings and their contents, not the land surrounding them. The coverage applies whether the flooding results from heavy or prolonged rains, coastal storm surge, snow melt, blocked storm drainage systems, levee dam failure, or other causes. To be considered a flood, the waters must cover at least two acres or affect at least two properties.

In certain flood-prone areas, the Federal Government requires flood insurance to secure mortgage loans backed by federal agencies such as the FHA and VA. Mortgagees of properties in floodplains may sometimes require flood insurance, as well. Flood insurance is available both within and outside of floodplains. Different types of policies are available depending on a property's flood risk.

Flood insurance covers both homes and businesses. Residential policies provide up to $250,000 of coverage for homes and up to $100,000 for contents. Commercial policies provide up to $500,000 of coverage for building and up to $500,000 for business personal property. Renters can also purchase coverage of up to $100,000 for contents.

Flood insurance is sold through over 200 insurance companies but underwritten and/or managed by the National Flood Insurance Program, a federal agency.

For more information, see:

1 comment:

Heidi said...

After Hurricane Katrina, more emphasis was placed on educating the public about flood coverage under a standard HO policy. It does not suprise me that 2 out of 3people know that flood is not covered whereas before Katrina, the number would have been much lower.
Regarding damages from Earthquake, I would wager that less than half of the public knows its not covered.