For many homeowners, flood insurance isn’t an option; it’s required by their home mortgage lender because the home lies within a 100-year floodplain. But if your home is situated in a moderate- to low-risk flood zone, it’s easy to question whether you should purchase flood coverage. The answer isn’t so black-and-white in that situation.
According to the National Flood Insurance Program, floods are the number one natural disaster in the United States. FloodSmart.gov, the NFIP’s official website, puts it simply: “Anywhere it rains, it can flood.” Another complicating factor – flooding also can be caused by other culprits such as melting snow. Even wildfires can raise the chance of flooding.
But one thing is certain: Standard home insurance policies do not cover flood-related losses. In 2012, many northeastern U.S. residents learned this lesson the hard way when Superstorm Sandy hit. The storm caused insured losses of nearly $19 billion, according to the Insurance Information Institute (III). Unfortunately, much of the flood damage was uninsured – leaving affected homeowners facing massive repairs without help from their insurance providers.
Should you risk it?
If flood insurance isn’t required as a condition of your mortgage, you are not obligated to carry it. However, even a small amount of flooding can have disastrous financial consequences. According to the NFIP, just one foot of water could cause $27,150 of damage in a 1,000-square-foot home – the average claim is more than $38,000.
Just because you aren’t in a high-risk flood zone doesn’t mean you aren’t vulnerable. Homeowners should consider that residents of moderate- to low-risk flood zones file about 25% of all flood insurance claims and receive one-third of Federal Disaster Assistance for flooding, according to the NFIP. By the way, that federal assistance normally comes in the form of loans – money you must pay back.
What does it cost?
For many homeowners, deciding whether or not to carry flood insurance comes down to the cost of an annual premium. We’ve all heard horror stories about the premiums, but nearly all of those come from the highest risk areas. The NFIP states that the average annual flood insurance premium is $650, still pricey for something you never hope to use. However, for moderate- to low-risk area homeowners there are less expensive options – a low-cost preferred risk policy starts as low as $129 annually.
How much does it cover?
Standard homes can be covered for $250,000 for the structure of the building and $100,000 for contents. The home, its heating, electrical and plumbing systems, appliances, carpeting, blinds, clothing, furniture and electronics are among the items that can be repaired or replaced as part of your flood coverage. Learn more about flood insurance at FloodSmart.gov.
Homeowners can buy flood insurance protection through the National Flood Insurance Program or some private insurers. Keep in mind, however, that policies take 30 days from the time of purchase to become effective. It’s best to have protection in place far in advance – you can’t launch your search when a storm starts brewing.
Considering taking your chances without flood insurance? Just make sure you have money set aside for emergencies. You may not always be able to prevent damage from happening to your home, but you can at least be financially prepared if it happens.
Back to the original question: Do you really need flood insurance? That’s something only you can answer.
