Understanding Flood Insurance – Coverage Insights
With over $20 billion in claims over the past 10 years, floods are the most costly natural disaster in the United States. Yet many real estate owners, from businesses to homeowners, often forgo the purchase of flood insurance when not required to by their mortgage company.
Unless you live in a flood-prone area, the thought of your property flooding may not be top of mind. Unlike fires which can occur anywhere, or large storms such as hurricanes or blizzards, floods tend to take property owners by surprise.
Flooding can be caused by a number of circumstances. In some instance, the primary event which causes flooding may occur miles away. A seemingly harmless creek bed can become a raging river due to snow melt from a neighboring state. In the desert, monsoons can produce rain at such a pace, the ground cannot absorb it fast enough. Even urban sprawl with more concrete laid every day can result in normally dry areas to become unintentional flood basins.
Understanding the Risk
During the early 1970s, with little interest by private insurance companies to sell flood insurance, the federal government initiated the National Flood Insurance Program (NFIP). The program set forth a number of guidelines for communities to implement and follow. Once accepted, property owners then were able to purchase flood insurance through private insurance companies with the backing of the federal government.
At the core of the program are flood zone maps. The maps identify flood hazards in two distinct categories, Special Flood Hazard Areas (SFHA) and Moderate Flood areas. Properties in a SFHA are expected to flood once every 100 years while those in Moderate Flood areas once every 500 years. Although these time frames are longer than our average life expectancy, what we do not know is what year a flood will occur.
There is a saying within the industry that states “everyone is in a flood zone.” This means it’s not whether or not you are in a flood zone, but rather which one. The first step in determining your risk of flood is to obtain a Flood Zone Determination. This document can be obtained free of charge from your insurance agent or through FEMA’s website.
Applying for Coverage
Once you have obtained your Flood Zone Determination, it is time to determine if your property is in a High or Moderate Hazard flood zone. Fortunately, this is easily identified. If your flood zone starts with the letter ‘A’ or ‘V,’ your property is in the SFHA and has a 1% chance of flooding annually. All other flood zones have a once per 500 years or less chance of flooding.
Even if you are in a Moderate Hazard flood zone, carefully consider purchasing coverage. Nearly 20% of all flood claims occur in these zones. And when only an inch of flooding can cause thousands of dollars of damage, purchasing affordable NFIP flood insurance may be your best move.
For those properties in the Special High Hazard zone, your insurance agent will have more work to do. Flood maps don’t only determine how often an area may flood, but also at what average elevation. The higher your lowest floor is above the average will reduce the cost of your flood insurance policy. In order to determine your property’s elevation requires obtaining an Elevation Certificate.
Elevation Certificates many times can be provided your city or county flood manager. If you recently purchased your property, the prior owner can supply you a copy as well. Should a prior Elevation Certificate not be readily available, one can be completed by a surveyor for a nominal fee. Together with your Flood Zone Determination, you are ready to apply for flood insurance.
With elevation information on hand, you and your agent are ready to determine the right coverage for you and your family or business. Unlike property or homeowners’ policies, the amount of insurance you may purchase is limited.
Homeowners may purchase up to $250,000 of flood insurance while business properties may obtain $500,000. If you are looking to only cover your contents, the cap is $100,000.
Once the amount of insurance is determined, choose a deductible, which fits your financial plan. Starting as low as $1,000 for homeowners and up to $25,000 for businesses, the higher the deductible, the lower the premium.
All policies include a minimal amount of Increased Cost of Construction. This means if your property requires upgrades to meet local flood building codes, some claim money may be used for its construction. Otherwise, the NFIP’s standardization is limited to further customization of your policy.
Unless you are purchasing flood insurance to secure a mortgage loan, or your community had a recent flood map change, a 30-day wait applies before coverage begins. This is to prevent purchasing insurance when a major storm or other event is forecast.
If you are securing a mortgage and your property is located in a Special Flood Hazard Area (zones starting with letters “A” or “V”), you will be required to purchase flood insurance. Should coverage not be secured by the time of closing, banks reserve the right to force-place coverage, often at a much higher premium than what is available through your own insurance agent.
To learn more about your options for flood insurance and our other personal and commercial risk management services, contact our office at (850) 942-7760.
Demont Insurance Agency, Inc. The Insurance You Need, The Assurance You Deserve.