Recently, in Florida, flood insurance has become a hot topic. This is mainly due to the fact that residents of some areas are seeing increases of several hundred percent to their flood insurance policies (e.g., a recent client stated that his flood insurance premium jumped from $500.00 per year to $7,000.00 per year). Increases in flood insurance premiums are also causing many real estate sales to fall through when the potential buyer obtains a quote for flood insurance. For these reasons, it is important for Floridians to be knowledgeable about flood insurance.
Flood insurance is a policy of insurance that provides coverage for damage caused by a flood (up to the limits of the policy). The term “flood” is defined in most policies as a rising and overflowing of a body of water onto normally dry land. The word “rising” is the distinguishing term for determining whether the damage is classified as “flood damage” or “water damage.” This is important because many homeowner’s insurance policies limit their coverage to “water damage.” Generally, water that has been on the ground at some point before causing damage to a home is considered to be flood damage. Examples of flood damage include:
· A nearby river overflows its banks and washes into your home.
· A heavy rain seeps into your basement because the soil can’t absorb the water quickly enough
· A heavy rain or flash flood causes the hill behind your house to collapse into a mud slide that oozes into your home.
The following FAQ’s were obtained from the National Flood Insurance Program website (more information at: http://www.fema.gov/national-flood-insurance-program):
Doesn’t my homeowner’s insurance policy cover flooding?
No. Flood damage is not typically covered by a homeowner’s insurance policy.
If my home is flooded, won’t federal disaster assistance pay for my damages?
Not necessarily. Federal disaster assistance typically comes in the form of a low interest loan to help cover flood damage, not compensation for your losses. Even then, those loans are only available if the president formally declares a disaster and must be repaid along with any existing mortgage.
Am I eligible for flood insurance?
You must live in a community that participates in the National Flood Insurance Program (NFIP) to qualify for National Flood Insurance. Find out if your community participates in the NFIP and the kinds of NFIP resources available in your community.
Can I get flood insurance if I’m renting a property?
If you live in a community that participates in the NFIP, you can get flood insurance to cover the contents of your home or business.
I live in a low-risk flood zone. Do I really need flood insurance?
Most likely, yes. It’s a good idea to buy flood insurance even if you live in a moderate- or low-risk area. Anyone can be financially vulnerable to floods. People outside of high-risk areas file nearly 25% of NFIP claims and receive one-third of disaster assistance for flooding. When it’s available, disaster assistance is typically a loan you must repay with interest. Preferred Risk Policy premiums are the lowest premiums available through the NFIP, offering building and contents coverage for one low price.
Why do I need flood insurance, even though my community has never been flooded?
Flooding occurs in moderate-to-low risk areas as well as in high-risk areas. Poor drainage systems, rapid accumulation of rainfall, snowmelt, and broken water mains can all result in flood. Properties on a hillside can be damaged by mudflow, a covered peril under the Standard Flood Insurance Policy. In high-risk areas, there is at least a 1 in 4 chance of flooding during a 30-year mortgage. For these reasons, flood insurance is required by law for buildings in high-risk flood areas as a condition of receiving a mortgage from a federally regulated or insured lender.
Why does my mortgage lender require me to buy flood insurance?
Under federal law, the purchase of flood insurance is mandatory for all federal or federally related financial assistance for the acquisition and/or construction of buildings in high-risk flood areas (Special Flood Hazard Areas or SFHAs).
The amount of flood insurance coverage required by the Flood Disaster Protection Act of 1973, as amended by the National Flood Insurance Reform Act of 1994, is the lesser of the following:
1. The maximum amount of NFIP coverage available for the particular property type,
2. The outstanding principal balance of the loan, or
3. The insurable value of the structure.
If the property is not in a high-risk area, but instead in a moderate-to-low risk area, federal law does not require flood insurance; however, a lender can still require it. It is also recommended since historically nearly one-in-four NFIP flood claims occur in these moderate- to low-risk areas! Note that if during the life of the loan the maps are revised and the property is now in the high-risk area, your lender will notify you that you must purchase flood insurance.
Who do I contact if I want to purchase a flood insurance policy?
The National Flood Insurance Program has an arrangement with private insurance companies to sell and service flood insurance policies. A list of private insurance companies that sell and service NFIP flood insurance policies is available to you.
You may also contact your insurance agent or company to find out more about federal flood insurance or find an agent serving your area by filling out the Flood Risk Profile.