Flood Insurance: What You Don’t Know May be Harmful to Your Pocketbook
We humans have a love-hate relationship with water. We soak in it to soothe tired muscles, and relax to the sound of it falling on the roof. At the beach, we frolic in its waves. Water nurtures life – without it, we can’t survive.
But water can also turn deadly. When winter storms end and the snow begins to melt, the threat of flooding increases. Rivers and creeks begin to swell. This is when we can see how powerfully destructive water can be. In fact, flooding is the No. 1 disaster in the United States, costing almost $2 billion in insurance claims each year. According to the National Flood Insurance Program (NFIP), the average claim is $46,000. Only about 15 percent of homeowners carry flood insurance; if you’re not one of them, do you have a spare $46,000 lying around?
Not all homeowners need the extra coverage provided by flood insurance. How do you know if you need it? Let’s look at some common misconceptions that keep homeowners from buying the coverage that might save them from financial catastrophe.
My homeowners insurance policy covers flood damage.
Are you sure? “Standard homeowners and renters insurance does not cover flood damage,” says the Insurance Information Institute. To be covered for this disaster, you’ll need to buy a separate policy.
Even if you have flood insurance, you should revisit the policy at least once a year to make sure that it provides the right coverage for your current circumstances. For example, NFIP covers up to $250,000 for the home’s structure and, for personal possessions, $100,000. It is the latter coverage you want to revisit. If you buy something expensive that might be damaged or lost in a flood, you may need to increase your personal possessions coverage.
When you consider that even a small amount of water coming into your home can cause thousands of dollars in damage, flood insurance coverage becomes even more important.
Flood insurance is too costly.
According to NFIP, the cost is an average $650 per year for the peace mind you’ll get by carrying floor insurance. Compare that to the average claim of $46,000, the decision whether to purchase flood insurance is quite clear.
My home isn’t located in a flood plain.
When you buy a home, it’s a good ideas to look into whether it is located in a flood plain. Just know that “many conditions can cause flooding: spring thaws, heavy rains, hurricanes and the rapid accumulation of rain after a wildfire are just some of them,” according to the experts at Allstate Insurance. It can happen anywhere. At any time.
In fact, according to the Federal Emergency Management Agency (FEMA), one in five claims for flood damage come from homeowners who live in areas deemed moderate to low flood risk. The danger here is that lenders typically won’t require flood insurance in these lower-risk areas. It’s up to the new homeowner to protect themselves.
I can’t afford it now – I’ll wait until it appears I may need it.
Let’s look at this another way: Would you wait until after your home burns down to try to purchase insurance? Of course not! Plus, according to FEMA, “There is usually a 30-day waiting period after premium payment before the [flood insurance] policy is effective.”
There are exceptions to the waiting period rule and you can read about them on FEMA’s website.
It’s hard to think about paying more for your homeowners insurance when you’re in the thick of making a huge cash layout for a home purchase, but the consequences of being unprepared for a flood can be devastating. Research the area where the home is located and weigh the risks. Visit the FEMA website for information from the Flood Map Service Center to help you decide.
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