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Here Come the Floods. How to Be Sure You're Covered

Joe Kozlowski looks out on his flooded property from his porch in Fox Lake, Illinois.
Reuters
Joe Kozlowski looks out on his flooded property from his porch in Fox Lake, Illinois.

The spring floods are here and the summer hurricanes are not that far away.

Flooding is the most common natural disaster in the United States, according to the Federal Emergency Management Agency (FEMA).

The standard homeowner's insurance policy does not cover flood damage. You need to buy a separate policy from the National Flood Insurance Program or a private company.

After recent disasters such as Superstorm Sandy, plenty of people know this. The problem is that too few have done anything with that information.

"We were pleasantly surprised that more than four out of five people – that's 81 percent – knew that you need to get a special flood insurance policy to cover flooding," said Doug Whiteman, associate editor for insurance at Bankrate.com, which conducted a nationwide survey to find out. "But not enough people act on that information. They haven't taken the necessary steps to protect their homes."

The insurance industry estimates that only 13 percent of the homeowners in this country have flood insurance.

"People may have a false sense of security," Whiteman suggested. "They haven't seen a major flood where they live, so they don't think they need to be concerned about the potential for flooding."

Know the risk

FEMA has two classifications for flood risk: high and moderate-to-low. The Bankrate survey found that only half the homeowners (51 percent) knew the risk category where they live.

In a high-risk area, your home is more than twice as likely to be damaged by a flood as by fire. According to FEMA statistics, there's a 26 percent chance your house will have flood damage during the term of a 30-year mortgage.

"But low-risk doesn't mean no risk," said Jeanne Salvatore, senior vice president for public affairs at the Insurance Information Institute, an industry trade group. "The National Flood Insurance Program reports that about 25 percent of the claims they pay out are in low-risk areas."

Flood insurance covers losses from flood waters and flood-related erosion caused by heavy or prolonged rain, coastal storm surge, snow melt, blocked storm drains or levee dam failure.

Salvatore believes everyone should know what the flood risk is where they live. It's easy to do. Just go to FloodSmart.gov and put in your address. You'll get the FEMA flood risk designation and find out what a policy might cost.

You can buy up to $250,000 coverage on the structure and up to $100,000 on the contents. Renters are encouraged to get coverage on their belongings. The price is based on your risk and it might be cheaper than you think.

"The average flood insurance policy costs $50 per month, so for roughly the cost of dinner and a movie, consumers can protect themselves," Whiteman said. "The average payout is about $30,000."

If you live in a moderate-to-low risk area you may qualify for the Preferred Risk Policy that provides contents coverage beginning at $50 per year and building/contents coverage starting at $129 a year.

Don't wait

This is not a last minute purchase. When the rivers are rising or the hurricane is off the coast, it's too late. There's a 30-day waiting period after the policy is purchased.

Florida Insurance Commissioner Kevin McCarty recently advised residents that they'll need to buy flood insurance by May 1 in order to be protected on June 1, the first day of hurricane season. This year's hurricane season is expected to be "above average," according to forecasters at Colorado State University. McCarty also noted that significant rate increases for new and renewal NFIP policies start on October 1, 2013.

Don't make the mistake of assuming the government will pay for any flood damage. Even if the president formally declares the area a disaster, federal disaster assistance typically comes in the form of low-interest loans. It's not compensation for your losses.

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