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How to Choose Flood Insurance

June 9, 2012 - 07/10/12
By Gail Cohen

You can run, but you cannot hide when Mother Nature comes to call, saturating your geographic region with enough water to destroy your home. According to a "Wall Street Journal" article, "Everyone lives in a flood zone; floods and flash floods happen in all 50 states and 25% of all flood losses occur in low-to moderate-risk zones." Flood insurance can mediate some of the loss; the trick is finding a policy that's both comprehensive and affordable.

What is Flood Insurance?

The standard homeowners insurance you purchase to cover your home's contents won't cover flood damage, says Robert Hartwig of the Insurance Information Institute. Homeowners must purchase a separate policy. The National Flood Insurance Program (NFIP), administered by the Federal Emergency Management Agency (FEMA), was created in 1968 by Congress to make sure consumers could get post-flood coverage. Flood insurance pays for structure replacement and rebuilding after heavy rains, hurricanes, dam, river and lake overruns impact real estate. In return for offering this coverage, the U.S. government requires communities to "adopt and enforce ordinances that meet or exceed FEMA requirements to reduce the risk of flooding."

Standard Policy Points

Learn about flood insurance regulations so no surprises await when you explore your options. A Flood Hazard Boundary Map drawn up by the NFIP sets the standard for risk coverage. Rates are determined by these boundaries. Regardless of the zone in which you live, your flood insurance does not take effect for 30 days. That stated, proof of flood insurance might be required at your real estate closing. When you explore your options, ask your agent for assurances that the policy honors the "effective date" as the day of the closing. The contents of your home are not covered by basic flood insurance. NFIP coverage is designed to fix, replace or rebuild the home.

High-End Home Value Flood Insurance Options

Buying flood insurance coverage is easy if price is no object. If your property falls into the high-end home category-it's valued at $500,000 or more-- turn to consortiums like Privilege Underwriters Reciprocal Exchange (PURE) if such a resource is available in your state. High-profile insurers like ACE Ltd., Chubb and Allianz and specialized divisions of corporations like the Private Client Group at Chartis, an AIG subsidiary, are also resources for underwriting high-end home value flood insurance. Even if your property falls into the half-million and up real estate category, you'll have plenty of options when you shop. If you're conflicted and need more help making a decision on your carrier options, turn to Moody's, Standard & Poor's and Fitch Ratings.

Standard Home Value Insurance Options

One of the most efficient ways to choose flood insurance coverage if your home is not categorized as a high-end risk is to stick with your current insurer and take advantage of bundled rates. For example, State Farm, Allstate or Travelers underwrite your homeowner's and car insurance policies. Ask your agent or broker whether the company sells flood insurance in your area of the country, but don't make this your only option. It pays to ask for rate quotes from other carriers when buying flood insurance, if only to make sure you avoid suffering from buyer's remorse after the fact.

The NFIP Protects All Homeowners

All insurance company policies are federally backed by the NFIP, but prices and benefits associated with coverage are unique to your geographic areas and property values. For your information, settlements top out at $250,000 worth of coverage if your home isn't in the high-end valuation category. It's worth repeating: if a flood occurs, NFIP flood insurance doesn't include your home's contents, so while you're exploring your options, ask your agent or broker if she can add a separate policy covering your furnishings and other assets.

Get More Information

Download and read GAO Report 09-20, prepared for the U.S. Senate Committee on Banking, Housing, and Urban Affairs. It's titled, "Flood Insurance: Options for Addressing the Financial Impact of Subsidized Premium Rates on the National Flood Insurance Program"