Flood insurance is a topic that seems to come up periodically. We find that very few insurance professionals are well versed on the ins and outs of how it works. Here are some of the common questions we get here at i.e. Insurance, and basic answers. As always, contact us with any questions!!!
What is a Flood?
The official definition from FEMA is:
o A general and temporary condition of partial or complete inundation of 2 or more acres of normally dry land area or of 2 or more properties (at least 1 of which is the policyholder’s property) from:
–Overflow of inland or tidal waters; or
–Unusual and rapid accumulation or runoff of surface waters from any source; or
o Collapse or subsidence of land along the shore of a lake or similar body of water as a result of erosion or undermining caused by waves or currents of water exceeding anticipated cyclical levels that result in a flood as defined above.
Do I have to buy flood insurance?
This depends on a couple things, First, if a property is owned ‘free and clear’ there is no requirement to purchase any insurance. If a property has a high risk of flooding, flood insurance MAY be required. MAY is because a policy would only be required if the property falls within a high-risk area of experiencing a flood.
How do I know if I’m in a high-risk area?
Simple – give us a call! In addition to working with us, your lender can also help with flood mapping. Lenders and insurance companies sometimes look at risk zones slightly differently, so it’s best to check with both. Although not incredibly common, lenders and insurance companies can show different risk zones. This leads to confusion with the lender, policy changes, and unexpected additional costs. It’s best to have an insurance professional involved.
Do I need flood insurance if I’m not in a high-risk area?
Maybe… Insurance is about transferring risk. Every property has a risk of experiencing flooding. The decision to secure flood insurance is based on the amount of risk a property owner is willing to absorb. We think about this from a cost perspective. Here is an example:
If a policy is purchased for a low risk property, the cost is typically between $450 and $650 annually. If that policy remains in place for 10 years with no claim, the cost of insurance was between $4,500 and $6,500. But, let’s say someone with a policy has a flood at year 5 that pays out $10,000 to repair damage to property. In essence that person came out $7,750 ahead of the game (difference between $2,250 in policy cost versus $10,000 paid by insurance).
What options are available for flood insurance?
There are two ways to purchase flood insurance. The first is through the National Flood Insurance Program (NFIP), administered by FEMA. In this case, many different insurance companies will provide the servicing of the policy, but the rating and pricing structure is the same for every company. If the lending source is backed by a government program (think FHA, VA, USDA loans) clients will be required to have a NFIP insurance policy. Some insurance providers also require NFIP insurance.
The second option is called “Private” flood insurance, which is more similar to how other types of insurance are purchased. An insurance company devises their own pricing and policy system. The policies offer coverage that is equal or better than the policy offered by NFIP. Most times the price is a fraction of the cost of the NFIP program. Because these policies are underwritten by the individual insurance company, not all properties are eligible for this coverage, and pricing will vary based on the company the policy is written through.
Can you help me with flood insurance?
Yes! We have access to both the NFIP flood insurance and private flood insurance. We provide NFIP insurance through several of our insurance companies, so often times we can keep your home insurance and flood coverage with the same servicing insurance company. In addition, we also have access to Assurant, an industry leader in private flood insurance.