A Flood Insurance Policy is Often Misunderstood by Homeowners and Renters

Water damage and flood damage are considered two different types of hazards. All homeowner insurance policies exclude coverage in the event that damage was caused by flooding. When two or more acres of normally dry land or two or more properties are swamped by water, flooding has occurred. If a washer machine hose breaks or rain enters the home through the roof or broken window, water damage has occurred and coverage is provided by a homeowner insurance policy.

Compensation for damage caused by flooding is provided by a flood insurance policy. Unlike a homeowner insurance policy which is offered by private enterprise, this type of policy is available from the federal government. The National Flood Insurance Program (NFIP) is the government entity which provides these policies. NFIP is administered by the government through the Federal Emergency Management Agency (FEMA). NFIP works through private insurance companies to assist in making flood insurance policies available to property owners and renters. The private insurance companies utilize property and casualty insurance agents to sell the flood insurance policy to property owners and renters. The cost of the policy for a specific property does not vary from company to company or agent to agent. The primary factor that determines the cost for a policy is the location of the property and its risk for flooding as determined by NFIP. Flood maps are utilized to predict the risk for flooding in a particular geographic area and the specific elevation of a property further determines the level of risk.

Flood insurance policies provide coverage for buildings and contents. Before a policy is effective there is a 30 day waiting period from the date of purchase. Historically, about 25% of flood insurance claims come from low to moderate risk areas. Since premiums are reduced in lower risk areas, property owners and renters will pay a fair amount for a policy relative to the risk they face for damage caused by flood. For high risk areas a mortgage lender is required, under federal law, to oblige a property owner to purchase a policy providing insurance coverage for the building in the event of a flood. contents coverage is not part of the requirement.

Just a small amount of water from a flood can cause many thousands of dollars in damage. All property owners and renters should carefully consider purchasing a flood insurance policy to protect their building and contents. Keep in mind that a lender will require a policy only if the property is in a high risk area and only for coverage on the building. Also, remember that a significant percentage of flooding occurs in low risk areas. Finally, don’t forget about the 30 day waiting period before a flood insurance policy becomes effective.

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