Every year floods damage property and homes. Not all of the damage occurs in flood zones. Find out why FEMA says that you should have flood insurance coverage even if you don't live in a high risk flood area.
Flood insurance is only for people living in Florida or on the banks of the Mississippi river right? Wrong. According to FEMA 25% of flood claims come from areas that have low to moderate flood risk.
The NFIP
Congress established the National Flood Insurance Program (NFIP) to manage the risk associated with floods. The NFIP does 2 things. It helps communities develop and implement flood management plans. It also underwrites flood insurance policies.
Do I Have to Buy Flood Insurance?
If your property is in a high risk area, your mortgage lender will require you to buy flood insurance. FEMA mandates it for any mortgage that is government backed (FHA, etc).
If you own your home outright, that is you paid off your mortgage, then you are not required to have flood insurance. However, you should carry flood insurance if you live in a flood zone.
But I live in a low-risk flood zone. Do I really need flood insurance?
According to the NFIP official website, you should buy flood insurance, even in low to moderate risk areas. Again, 25% percent of claims come from lower risk areas.
In low risk areas, a Preferred Risk Policy is available. Residential Preferred Risk Policy premiums start as low as $119 per year for building and contents coverage. Commercial policies start at $550 per year for combined building and contents coverage, or $145 per year for contents only.
Preferred Risk Policies are very affordable. You should buy a preferred risk policy, even if there is only the slightest possibly of flooding in your area.
Do Renters Need Flood Insurance?
Yes. Renters need flood insurance. If you rent in a high risk flood area you should have flood insurance. Renters can buy flood insurance policies just like home owners.
But My Apartment is on the Second Floor (or Higher)
Many renters believe that because they don't live on the ground floor they don't need flood insurance. Floods are messy. Just because the flood waters don't directly damage your apartment you could still have problems. Mold and mildew are common after a flood. Your possessions could still be damaged or destroyed indirectly.
But the Government Says We're Safe
The Army Corps of Engineers has been wrong many times. What about New Orleans and Katrina? Here's another example where FEMA told people their levee was safe and they dropped flood insurance, only to have their homes wiped out in a flood.
The government cannot control the weather. Levees and dykes are man made devices which can and often do fail. You should not rely on the government (state, federal or local) for your safety and financial well-being.
Aren't Floods Rare?
Thankfully, yes. FEMA rates flood preparedness based on 100 year floods. A 100 year flood is a flood that has a 1% chance of happening each year in 100 years. However, recent floods in the Midwest have been labeled 500 year floods. So the flood plans that FEMA and local governments had in place just weren't adequate.
People in general are very bad at estimating risk. Especially for events that have a small chance of happening. Some of these events, like catastrophic flooding are both rare and extremely devastating. Read The Black Swan: The Impact of the Highly Improbable
Don't Wait Until It's Raining
Flood Insurance takes 30 days to kick in. That means you should buy it now, not when the authorities are telling you to evacuate your home.
Flood insurance can reduce the a pain of a flood. Imagine not only losing your home but also having no money to rebuild. Without flood insurance, that's the reality many flood victims face.
Any Other Questions?
Please post your questions in the comments below.
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