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The Basics of Flood Insurance

It’s wrong to think a flood will never happen to you. It could. It’s also important to remember that your homeowners policy does not cover damage from floods. 

Flooding is the nation’s most common natural disaster. About 90 percent of all disasters in the U.S. involve flooding and flooding happens in all 50 states.

In areas prone to flooding, there is a 26 percent chance a homeowner will be hit by a flood of some kind at least once during the life of a 30-year mortgage. Additionally, flood damage can be the result of clogged or defective drainage systems and drainage from new housing developments, not just from major storms and rising rivers and creeks.

Just because your home lies in the 100-year flood plain doesn’t mean it’s safe for 99 years. The 100-year flood plain means your home or business has a 1 percent chance of flooding every year, not once in every 100 years.

Many new homeowners mistakenly believe their homeowners policy covers homes for flood damage. Homeowner policies do not cover flood damage. You can only purchase a flood policy from the National Flood Insurance Program, which was created in 1968 by Congress. The program sets all the rates, which factors in location, structure type and whether the property has a basement.

Between 2007 and 2011, the average flood claim through the National Flood Insurance Program was nearly $30,000. The cost of a typical flood policy is about $625 a year.

However, rates are rising.

Under 2012 legislation that reauthorized and reformed the underfunded program, owners who have paid subsidized rates for second homes, business properties and properties that have incurred repeated and severe losses must now pay the full actuarial cost of the insurance. Rates for these properties will increase by no more than 25 percent a year until the premium meets the full cost.

According to the law, premiums on any property within a participating area of the flood insurance program must accurately reflect the current risk of flooding. However, that determination won’t be made until the effective date of any revised or updated flood insurance rate map.