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Hurricanes grab the headlines, but because floods happen in virtually every part of the country, they cause more losses than any other type of natural disaster. Homeowners insurance doesn’t cover floods. Only flood insurance covers flood damage to your home.
What causes floods?
Manmade problems from the construction of roads, shopping malls, homes, and industrial complexes
Nope. You must buy flood insurance only if you meet all three of these criteria:
You buy a home in a special flood hazard area where there’s a 1% chance of flooding in any year.
Your community participates in the National Flood Insurance Program.
You buy or refinance your home using a loan from a federally regulated financial institution, or a Fannie Mae- or Freddie Mac-guaranteed loan.
If you don’t meet these three requirements, no one will make you buy flood insurance. About 5.6 million Americans living in the more than 20,500 communities that participate in the flood insurance program buy flood insurance.
Flood insurance through the National Flood Insurance Program is sometimes expensive and sometimes cheap, depending on your home’s value, location, and height off the ground, as well as the value of your possessions. FEMA’s FloodSmart site includes a sampling of policy rates. Some examples:
It can cost more than $8,000 a year if you buy the highest possible coverage of $250,000 for property and $100,000 for contents for a second home in the highest-risk areas. FEMA defines high-risk as having “at least a 1 in 4 chance of flooding during a 30-year mortgage.”
It can cost as little as $129 a year for $20,000 of rebuilding coverage and $8,000 in contents for your main home, if it’s in a low-risk area.
Premiums vary a lot based on where you live. If you want to buy $250,000 of building coverage and $100,000 of contents coverage for your main home, you’d pay about:
$7,173 in a high-risk coastal area.
$3,289 in a high-risk area.
$1,798 a year in a low-to-moderate-risk area.
The NFIP doesn’t spend any tax dollars. The government sets the premium rates high enough to cover flood insurance claims and operating expenses in an average historical loss year. The program can borrow money from the U.S. Treasury when losses are heavy, but has to pay those loans back with interest.
To make sure it stays solvent, the NFIP is:
Phasing out subsidies for second and vacation homes and homeowners..
Improved the accuracy of flood maps.
Private flood insurance is very expensive and only a handful of companies offer excess flood insurance to homeowners with whose homes are valued at more than $250,000. The National Flood Insurance Program is the only program offering low- and middle-income homeowners flood insurance. If it disappeared, those homeowners wouldn’t have another option.
Five of the top-12 states with the most number of years in which claims exceeded premiums are in the Midwest, from 1978-2007. Many of the states hardest hit by floods are nowhere near the beach:
Dona DeZube has been writing about real estate for more than two decades. She lives in a suburban Baltimore Midcentury modest home on a 3-acre lot shared with possums, raccoons, foxes, a herd of deer and her blue-tick hound.
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