A couple of recent articles (one at The Simple Dollar and another at Money Smart Life) got me to thinking about living in a flood zone and how important it can be to have flood insurance. Can you imagine what it would cost to recover from a flood? And are you prepared to foot that bill if it ends up happening? In most cases, the answers to these questions are no and no.
Before we go any further, let’s talk a bit about what exactly flood insurance is (and isn’t). Unlike a standard homeowner’s insurance policy, flood insurance covers losses due to flooding. A standard flood policy covers things such as structural damage, damage to your furnace, water heater, and/or air conditioner, debris cleanup, and damage to floor surfaces such as carpeting and tile. You can also buy a policy to cover your belongings.
If you live in a high risk area, chances are your mortgage lender requires you to carry flood insurance. But how exactly is flood risk determined? In general terms, FEMA has identified land areas (referred to Special Flood Hazard Areas) that run a 1% or greater risk of flooding in any given year. These are referred to as 100 year flood zones, and being located in one typically means that you have (and should probably want) to be carrying flood insurance.
While 1% per year doesn’t seem like a lot, consider the odds over time… Indeed, the chances of having at least one flood in a 100 year flood zone during a 30 year span (the life of a typical mortgage) is just a shade under 26%. That’s right, if you live in a 100 year flood zone, the odds are a little better than one in four that you’ll experience a flood during the life of a standard 30 year mortgage. Even over 10 or 20 years the chances of a flood are still pretty substantial, at 9.6% and 18.1%, respectively.
So how do you know if you need flood insurance? In many cases, your mortgage lender will tell you. But if you’re interested in checking things out yourself, you can take a gander at the flood maps — these are sometimes available at your local library, your county planning commission, etc. You can also check them out online at the FEMA Map Service Center. Alternatively, you can search for your address over at FloodSmart.gov.
Finally, how do you get flood insurance? If your community participates in the National Flood Insurance Program (NFIP) you should be able to purchase flood insurance from a local insurance agency. You can search for agents in your area by going here. Just keep in mind that there’s typically a 30 day waiting period before flood insurance takes effect, so you can’t simply wait for it to start raining before you call.
When considering your options, please keep in mind the importance of insuring against events that you cannot afford to deal with.