Financial Skinny: Flood Insurance

When Mother Nature gets rough and you’ve got a tree sitting in your living room, it becomes clear just how important homeowner’s insurance can be. While typical policies cover many areas of damage, one serious exception is flood damage.

A new survey by Bankrate.com found that more than 80% of Americans know that a standard homeowner’s insurance policy doesn’t cover flood damage. Despite that, only 13% have flood insurance, according to the Insurance Information Institute. Scary figures when you consider that the Federal Emergency Management Agency (FEMA) calls flooding the country’s top natural hazard.

“This is a classic ‘do as I say, not as I do’ situation,” said Doug Whiteman, insurance analyst at Bankrate.com. “The vast majority of Americans know the key facts about flood insurance, but they haven’t taken the necessary steps to protect their homes.”

If the data is correct, odds are you don’t have flood insurance. To help you fix that before it’s too late, here are a few tips to owning the right policy.

Know Your Risk

FEMA’s National Flood Insurance Program classifies properties as being at either high or moderate-to-low risk of flooding. Bankrate’s survey also found that nearly half of respondent didn’t know FEMA’s classification of their property, thus their risk of flooding. Flood-hazard maps were created by the agency to help determine the cost of flood insurance for each homeowner. The lower the degree of risk, the lower the flood insurance premium. Finding your home’s risk level is actually pretty simple. In fact, it can be done with a few clicks online. Visit FEMA’s site, enter your address and the system will determine your flood risk profile and estimate your premiums.

Consider Federal Flood Insurance

Insurance through FEMA’s program depends on the home’s value and whether or not it’s in a flood plain. “The average flood insurance policy costs about $50 per month, so for roughly the cost of dinner and a movie, consumers can protect themselves against disaster,” says Whiteman. It covers the rebuilding of your home, up to $250,000, and pays the current value of personal possessions up to $100,000. Those with higher-value properties should consider purchasing excess flood insurance through a private carrier. Finally, homeowners in moderate-to-low risk areas are eligible for FEMA’s Preferred Risk Policy for as little as $129 per year.

Photo Courtesy,  U.S. Geological Survey.

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