Who Needs Flood Insurance? Maybe You

Many people simply don’t know that most property insurance policies do not cover flood damage. They just haven’t grasped that it’s possible for their own home, business, or belongings to be devastated by a flood.

That could be why only 17% of Americans in 2008 reported having flood insurance coverage; the remaining 83% are left exposed to some amount of risk.¹

The level of complacency is highlighted by the fact that, in a high-risk area, your home has a 26% chance of sustaining damage from flood during a 30-year period and only a 9% chance of damage from fire. Even if you do not live in a designated high-risk area, flood is still a significant threat, especially when you consider that in 2008 nearly one-fourth of the claims paid by the government’s National Flood Insurance Program (NFIP) were in low–to moderate–risk communities.²

Gauging Your Risk

If it rains where you live, then ultimately there is the possibility of a flood. A flood is defined as a temporary condition in which two or more acres of normally dry land, or two or more properties, are overwhelmed by water or mud. Some circumstances in particular can contribute to the occurrence of a flood, including storms, broken levees, spring snow thaw, poor drainage, and the rapid accumulation of water caused by torrential rain.

Of course, some areas are more likely to flood than others. The Federal Emergency Management Agency (FEMA) calculates the degree of risk in your community based on assessments of rainfall, topography, tidal surge, flood control measures, and many other factors. Flood-hazard maps are used to help communities identify the risk levels, depicting areas of high risk, moderate to low risk, or undetermined risk.

Gimme Shelter

Since there is the potential for a flood to occur on your property, you should be aware that flood coverage is available from a federal insurance program and from some private insurers. There is a 30-day waiting period for the insurance to go into effect, so it may not be available if you wait until the threat of flood is looming.

The NFIP policy provides replacement cost coverage, up to the policy limits, to pay for the rebuilding of your structure as it was before the damage, while possessions are covered only up to their actual cash value — which is replacement cost minus depreciation. The cost of insurance premiums is determined by the level of risk indicated on FEMA’s flood-hazard maps.

For homeowners, the maximum amount of coverage available under this program is $250,000 for the structure and $100,000 for the contents. Businesses are allowed $500,000 to cover the structure and $500,000 for the contents. Renters may purchase a policy that covers only their belongings.

For individuals who need more protection, some private insurers sell excess flood coverage over and above the coverage limits offered by the NFIP. It is available whether you live in relatively low-risk communities or more hazardous zones along the coast or near major rivers.

An unanticipated flood could certainly cause a hardship for you and your family. Please call so we can evaluate your family’s situation, examine what options are available, and determine whether adding a flood option is a good fit with your existing coverage.

1) Insurance Information Institute, March 2009
2) National Flood Insurance Program, 2009

The information in this article is not intended as tax or legal advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek tax or legal advice from an independent professional advisor. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. This material was written and prepared by StoneRiver–Emerald. © 2009 StoneRiver, Inc.