Flood Hazard Areas
Mortgage lenders generally require borrowers to purchase flood insurance if they want to buy homes in areas that have a high risk for flooding due to hurricanes, tropical storms and extreme rainfall. Standard homeowners insurance policies don’t cover damage associated with such events. Home buyers can avoid being required to get flood insurance by finding out whether a home is in a high-risk flood area before they decide to buy it. People who choose to buy homes in such areas should get an estimate on the cost of flood insurance before they purchase a home. According to 2010 estimates from the U.S. Federal Reserve Board, flood insurance may cost from $500 to $5,925 per year, depending on a home’s location, value and mortgage balance.
National Flood Insurance Program
The National Flood Insurance Program offers flood insurance to homeowners and renters. Congress created the program in 1968 to help participants handle the high costs of flood damage. A tool on the NFIP website allows users to estimate flood risks and insurance costs by typing in the address of a property they want to purchase or rent. The estimate also includes names and addresses of agents in the area that provide flood insurance policies. NFIP data for 2011 indicates that the average flood insurance policy costs $600 per year.
Homeowners
According to the NFIP, all homeowners are vulnerable to flood damage even if they aren’t in a high-risk flood zone. NFIP statistics indicate that people outside of high-risk flood areas file more than 20 percent of NFIP claims. Therefore, people whose homes are in a moderate to low-risk flood area may want to buy flood insurance even though they’re not required to do so by a mortgage lender. People living outside high-risk flood zones can get NFIP-preferred risk policies, which come with the lowest prices available through the NFIP.
Renters
Renters in moderate-risk to low-risk flood areas can get NFIP coverage at a preferred rate as well. Unlike homeowners, renters only need to protect their personal property from flood damage. It’s generally the responsibility of the landlord to buy flood insurance coverage for a home or apartment building. Therefore, renters can get NFIP flood insurance for as little as $49 per year for $8,000 worth of coverage to replace damaged or destroyed belongings following a flood.
Considerations
As of May 2011, homeowners can insure their properties against flood damage for up to $250,000. Homeowners and renters can cover their belongings for up to $100,000. It’s important to plan ahead when you buy flood insurance because policies don’t take effect until 30 days after purchase. However, Insure.com warns that a basement flood that results from heavy rainfall likely won’t qualify for a claim even after a policy takes effect. According to Insure.com, flood policies generally don’t pay out unless flood waters overtake two or more acres or two or more properties.