Flood Insurance Basics

Flood insurance is a bit different than other home insurance types. Dwelling fire policies and basic named peril or broad peril policies protect against most of the perils that can damage your home, but notable exclusions include floods and landslides.  The difference in what your home policy covers and a flood policy covers is where the water damage originated.  The home policy will cover damages due to busted pipes or windblown rain damage, while a flood policy will protect you from water damage caused by rising water, for instance water overflowing from a river or a mudslide caused by the loosening of soil during or after a storm.

Flood damage also differs from home policies in its availability.  This insurance type may be available through certain insurance companies as an additional coverage to your home policy or as a separate policy. However, certain low-lying areas or those near rivers may not be eligible for flood insurance since the risk of flood damage is so high in those locations.  If the insurance carriers were to write policies in these hazardous areas, the premiums for those policies would be too high to afford.  Due to this, the government instituted the National Flood Insurance Program (NFIP).

The NFIP allows people in high-risk flood areas to buy insurance from the government if a few conditions are met.

  1. The area must be designated as a high-risk flood area on the periodically released Flood Insurance Rate Maps.
  2. The community at risk from flooding must decide to accept the insurance provided by the NFIP and select a representative who will insure that all of the paperwork and conditions are taken care of.
  3. A floodplain management system must be instituted in the area applying for insurance. This system will minimize the risk of flooding in the area. Possible solutions could include installing or enlarging stormwater detention ponds, riverbank stabilization, increasing water body buffer zones, and other stormwater management measures.
  4. Minimum standards for this system will be set and must be maintained by the community to continue to have flood coverage, however improvements over the minimum could lead to a 5% to 45% discount on the area’s insurance premiums. The levels beyond the minimum are labeled 1-9 and each level has a corresponding premium discount.

If all of these conditions are met by a community then they will be able to buy insurance coverage from the government at set rates where they would not be able to do so through private insurance companies.  To see if your community is in one of these high-risk zones, check out these Flood Insurance Rate Maps (this data is still being updated by FEMA and more areas should be added in the near future).  For more information on the NFIP and a good FAQ page check out the FEMA website.

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