Flood insurance can be an important safeguard against significant financial loss, although your personal circumstances will help determine if it is right for you. Your decision should be based partly on the risk of flooding and the value of your home and possessions. But don't dismiss the idea simply because you live in a low-risk area or don't own a lot of expensive things.
Floods are the most common natural disaster faced by residents in the United States, and they occur in every area of the country. That means there's a chance your home could flood.
Flood insurance is sometimes required
You may not have a choice regarding the purchase of flood insurance. Anyone using a federally backed mortgage to buy a home in a high-risk area has to carry it. This is especially true in Special Flood Hazard Areas, which are the highest-risk areas, with an annual chance of flooding of one percent or higher.
Even if you're not required to carry flood insurance, eligibility for federal disaster aid may be contingent on you having it. For example, the Small Business Administration offers low-interest loans to homeowners in federal disaster areas (even if they don't own a small business), but only if they have flood insurance.
Flood insurance is often a good idea
Even in low-risk areas, flood insurance can provide peace of mind. You might not live near a river or stream that could overflow its banks, but your home can flood from other things. A homeowner's policy will often cover water damage from driving rain, but it will exclude damage from water that is already on the ground, like snowmelt and seeping water. There are many more opportunities for water on the ground to get into your home, from sewer backups to flash floods.
According to the National Flood Insurance Program (NFIP), the average flood claim is $48,000, and even one inch of water in a 1,000-square-foot home can cause $10,000 in damage. Can you afford to pay that out of pocket? In low-risk areas, the annual cost of a flood insurance policy is less expensive by comparison.
Things to consider
When making a decision about whether or not to buy flood insurance you should:
- Examine Federal Emergency Management Agency (FEMA) flood maps, which you can access at floodsmart.gov.
- Look at projected flood levels to determine how much water you might get in your home.
- Find out if your neighborhood has flooded in the past.
- Review your home inventory, which you should already have completed to determine the appropriate level of homeowner's coverage. If you don't have one, make one now, and consider the cost of replacing everything.
- Look into the possible costs to repair or rebuild your house.
- Determine your personal risk tolerance. If you are the kind of person who always buys the extra insurance on electronics and appliances, you should seriously consider buying flood insurance, too.
Only you can decide if flood insurance is right for you. Make sure you have all the information needed before making a decision.