Why You Should Purchase Flood Insurance
Many people might believe they are not in danger of incurring flood damage, but these individuals would be mistaken.
Essentially, if it rains where you live, it can flood.
A flood is technically defined as a general and temporary condition where two or more acres of normally dry land or two or more properties are inundated by water or mudflow. And any number of conditions, such as snow melt, flash floods and broken levees, can lead to flooding on a massive scale. In fact, flooding is the most common natural disaster in the United States.
Does Homeowners Insurance Cover Flood Damage?
Most homeowners insurance policies will not cover damage caused by flooding. As such, it is pretty risky to get by with only homeowners insurance coverage when your home could have a 26 percent chance of being damaged by a flooding over the course of a 30-year mortgage versus an only 9 percent chance of being damaged by fire, according to the Federal Emergency Management Agency (FEMA) .
Because standard homeowners insurance policies do not cover flood damage, the U.S. Congress created the National Flood Insurance Program (NFIP) in 1968 in order to provide a way for property owners to financially protect themselves against the significant damage that can result from flooding.
The NFIP, which is administered by FEMA, offers flood insurance to homeowners, renters and business owners in communities that participate in the program. The actual insurance policies are provided by the nearly 90 private insurance companies with which the NFIP works.
What you end up paying for flood insurance will depend on several factors, including the date and type of construction of your home as well as the flood risk level for your community.
Defining Flood Risk Areas
While floods can occur in any community, there are certain areas that are especially vulnerable to flooding. As part of the NFIP, flood experts evaluate communities, assigning them one of two risk levels:
High-Risk Areas
Also referred to as Special Flood Hazard Areas, or SFHAs, areas that are deemed to be high-risk areas have an at least 1 percent chance of flooding on an annual basis. Homeowners living in high-risk areas with federally regulated or insured mortgages are required to purchase flood insurance.
Moderate-to-Low-Risk Areas
Also referred to as Non-Special Flood Hazard Areas, or NSFHAs, areas that are deemed to be moderate-to-low-risk areas have a less than 1 percent chance of flooding on an annual basis. While flood insurance is not mandatory for those living in these areas, it is highly recommended for all homeowners and renters.
The Estimated Cost of Flooding
Flooding can cause far-reaching damages to one's home. Even a few inches of water can result in thousands of dollars in damage. Just imagine having to replace all of your flooring, baseboards and drywall - those costs alone could easily surpass the $5,000 mark.
The NFIP estimates the following costs for flood-related damages to a single home:
- One to four inches of water can result in $7,800 worth of damage;
- Five to eight inches of water can result in $11,480 worth of damage;
- Nine to 12 inches of water can result in $18,930 worth of damage;
- 13 to 15 inches of water can result in $22,235 worth of damage; and
- 16 to 18 inches of water can result in $26,285 worth of damage.