According to the National Flood Insurance Program (NFIP), flooding is this country’s most prevalent natural disaster. In the years between 1995 and 2004, flood losses in the U.S. averaged $867 million annually. There are about 4.7 million citizens who have taken advantage of the government’s flood insurance protection, however large numbers of at-risk Americans still refuse to find coverage. After hurricane Katrina last summer, when nearly 80% of New Orleans was underwater, it is surprising that people would not seek such coverage, since their homeowner’s policies do not insure them against floods.
Part of the problem stems from the innate sense that if it’s offered by the federal government, applying for it must be: a) tied up in red tape, and b) too complicated due to all the exclusions. Both of these statements, however, are not true. Let’s examine some of the commonly held beliefs about flood insurance:
- You can’t buy flood insurance if you are in a high-risk area. Flood insurance is available to all homeowners and businesses in any community that participates in the NFIP. You can check to see if your community participates by visiting http://www.fema.gov/fema/csb.shtm. The only issue which would prevent you from obtaining flood insurance is if you reside in a Coastal Barrier Resource System location, or a location that is designated as an Otherwise Protected Area. Land that falls under these two categories are undeveloped areas along coastlines. The flood insurance program doesn’t provide coverage in these areas to discourage settlement where there is an extreme risk not only for flooding, but potential loss of life.
- You can only get flood insurance if you are a homeowner. Condominium/co-op owners, apartment dwellers, and commercial/non-residential building owners can purchase NFIP coverage. There is a maximum of $250,000 worth of coverage on a one-family residential building. The maximum per-unit coverage limit on a residential condominium/co-op association building is also $250,000. Contents coverage for any residential building is limited to $100,000. Commercial/non-residential structures can be insured for a maximum of $500,000. You can also insure the contents of commercial buildings up to $500,000.
- You have to wait 30 days for flood insurance protection to take effect. Usually there is a 30-day waiting period from the time a policy is purchased until you are covered. However, there are some exceptions. There is no waiting period if you already have a flood insurance policy, but need more coverage to increase, extend or renew a loan, such as a second mortgage, home equity loan, or refinance. Coverage is effective immediately, as long as you pay the premium at or prior to loan closing. There is a one-day waiting period when additional coverage is requested because of a map revision. This applies when the NFIP revises the map so that a non-Special Flood Hazard Area becomes a Special Flood Hazard Area. Coverage must be purchased within 13 months following the map revision to be applicable for the reduced waiting period.
- You can get Federal Disaster Assistance even if you don’t have your own flood insurance policy. The Federal Disaster Program will only provide coverage to uninsured individuals or businesses if the affected area is declared a federal disaster area, which occurs less than 50% of the time. Statistics show the awards average about $4000 dollars and most are made in the form of a Small Business Administration Loan, which must be paid back with interest. Furthermore, the award recipient must carry flood insurance for the duration of the loan.
To learn more about the terms of flood insurance coverage, log on to http://www.floodsmart.gov/floodsmart/pages/faq_policy.jsp.
Source: FEMA Publication F-216 (08/04) and www.floodsmart.gov