Flood Insurance: Guide for Homeowners and Renters

Flood insurance is more or less fast becoming a necessity. The earlier homeowners and renters recognise this fact the better. Before, people used to think that flood insurance is for homeowners whose buildings are located in flood prone areas. With what we are seeing all across the country today, it is obvious that flood can happen anywhere. It is important to know that homeowners or renter insurance does not cover flood. This means that if you want to enjoy coverage against flood, you need to buy the policy separately. One may say that people are not buying flood insurance because they believe that their home cannot be affected by floods. But unfortunately, you realise that greater per cent of homeowners in coaster areas don’t have flood insurance either. Yet it is not that people are unaware of the devastating effects of flood. The truth is that, flood can cause a lot of damage that can cost thousands of dollars to fix. It has been estimated that a flood of just one inch of water can cost more than twenty thousand dollar. You can then imagine what the cost would be if the flood level is about twenty inches as we have seen in recent times. Let’s reflect on some of the recent flooding like Texas floods 2017, Houston floods 2016, Maryland floods 2016, Oklahoma floods 2016, Louisiana floods 2016, West Virginia floods 2016 etc. If you actually knew the impact of the floods, you may not hesitate to buy flood insurance policy. One good thing about flood insurance policy is that, it pays you whether or not a disaster is declared.

I think another reason why many people don’t show much interest in flood insurance is the availability of disaster grants from FEMA. Also, government makes disaster loans available to flood victims through U.S Small Business Administration (SBA) at very low interest rates. However, disaster grants are only made available only when a disaster is declared. In most cases, the money involved may not be sufficient enough to cover the cost of the repairs that need to be done to the affected building. Also, no matter how low the interest rates on the disaster loans are, it still remains loan and it has to be paid back. Instead of banking on loans, I think it will be much cheaper to buy flood insurance policy. Homeowner or renter insurance is not enough as they don’t cover flood disaster or catastrophe. You need flood insurance that will provide you adequate protection against any physical damage that flood might do to your property and possessions. Although government does not make flood insurance compulsory for everybody, if your home is financed, your lender may mandate you to buy flood insurance.

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How to Buy Flood Insurance

You will need to contact your insurance agent to help you buy flood insurance policy as you cannot buy directly from National Flood Insurance Program (NFIP). If you have home or renter insurance already, you can contact the same insurance company where you bought your policy. If they don’t offer flood insurance, they may be in a good position to direct you on how to go about it. However, you need to understand that National Flood Insurance Program (NFIP) is only available in participating communities. Therefore, you need to be sure that your community is among the participating communities. You can determine whether your community participates in the NFIP by checking with your local floodplain administrator or by looking on the website of Federal Emergency Management Agency (FEMA). When you buy flood insurance, it will take thirty days on average before the policy will come into effect. However, if you are on mortgage, the effective day may be less depending on when you pay the closing costs. It is important that you let an insurance agent guide you. A good insurance agent will be able to advice you on some vital issues. He will let you know your property’s flood risk and whether flood insurance will be necessary for you. He can educate you on how much coverage you can get for your building and your content. Based on his experience, he will be in a better position to advise you on steps you can take to lower the cost of your flood insurance premium. And if you need to buy, renew your policy or make claims, he will be available to help you.

How much does flood insurance cost?

The cost of your flood insurance will largely depend on your coverage and location. If your home is located in a place categorised as Special Flood Hazard Area (SFHA), it means that it is a high risk area. You will be charged higher flood insurance premium. On the other hand, if your property is located in a Non-Special Flood Hazard Area (NFHA), your premium will be lower. Essentially there are three types of coverage that are applicable to flood insurance namely; building coverage which offers protection for the physical structure of residential and non-residential buildings; content coverage which only covers your possessions; and replacement cost coverage which is only applicable to owner-occupied single family that are the primary residence of the policy-holder and must be insured up to eighty per cent of the replacement cost. You may not need to bother yourself much about these technicalities; your insurance agent will be able to explain to you.  In term of filing claim, the cap that government provides for physical structure is $250,000 for residential building and $500,000 for non-residential building. Under content coverage, the caps are $100,000 and $500,000 for residential and non-residential policies respectively. If you want excess insurance coverage, you might need to buy from private insurance company. Please note that flood insurance will not reimburse you for the living expenses you might incur in case you need to move out from your home while repairs are being carried out. For the coverage and premium you will pay, it is the National Flood Insurance Program that will determine these. Other factors that will impact on your flood insurance rate include the age of your home, the type of materials used in building your home, the number of floor that your home has, how and where you keep your possessions in the home, the history of flood risk and the deductible you choose. Definitely, if your possession is kept below the base flood elevation level, there is tendency that they will be affected if flood occurs. In fact, you can be surcharged for this.

Surcharge on Flood Insurance

If you enrol in National Flood Insurance Policy, you will be asked to pay surcharge in addition to your flood insurance premium. It is a law contained in the Homeowner Flood Insurance Affordability Act (HFIAA) which was passed in 2014. The amount of the surcharge you will need to pay depends on whether the insured building is owner occupied or held by tenants and the type of the policy form for the building. For instance, if a building is owner occupied single family detached building and individual condominium unit which is insured under the dwelling policy form, you will be surcharged $25. The same rate applies to tenants with contents-only policies that are insured under the dwelling form as long as it is the tenant’s primary residence. Policies for other buildings as well as policies insured under the Residential Condominium Building Association Policy form will attract a surcharge of $250. This is irrespective of the number of units of the building, whether attached or detached, or the use of the building. Also, if your building is insured under the general property form, you will be surcharged $250. Surcharge is paid annually as part of your flood insurance premium. That is, you are not making a different payment for the surcharge. It is the responsibility of the policy holders to send their insurance agent documentation that verifies that their policy is for a primary residence. Otherwise, they may be surcharged $250 instead of $25. However, if you are surcharged wrong amount, you can still quickly contact your insurance agent to submit necessary documentation verifying that the policy is for primary residence. Thereafter, necessary correction can be made.

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As a policyholder, you may be curious about why you still need to pay surcharge in addition to your premium. The reason for the surcharge is that some policy holders in certain communities under National Flood Insurance Program pay subsidized rates in order to make the insurance affordable for them. The surcharge is being used to cover up the premium gap and to pay for the future claims. As a result of high rate of claims, National Flood Insurance Program (NFIP) has been in debts. Part of the surcharge is also used to pay off the debts gradually. Government is actually working towards removing the subsidized rates and this is being done on a gradual basis. By the time the subsidy is completely eliminated, there may be no justification for subsidy again.

What is covered under a flood insurance policy?

Essentially, the National Flood Insurance Program covers direct physical damage by flood to your building and/or personal property.  You should note that any damage caused by a sewer backup is only covered by flood insurance if it is a direct result of flooding. This implies that if the backup is caused by some other problem, the damage will not be covered. Specifically, below is the list of what is covered under a flood insurance policy.

Building Coverage

Your building coverage will provide protection for the following:

  • The electrical and plumbing systems
  • Refrigerators, cooking stoves, and built-in appliances such as dishwashers
  • Furnaces, water heaters, heat pumps, and sump pumps
  • Permanently installed paneling, wallboard, bookcases, and cabinets
  • Permanently installed carpeting over an unfinished floor ..
  • Window blinds
  • Cisterns and the water in them
  • Foundation walls, anchorage systems, and staircases attached to the building.
  • Solar energy equipment
  • Detached garages
  • Fuel tanks and the fuel in them
  • Debris removal
  • Well water tanks and pumps

Contents Coverage

Below are the protection you enjoy under content coverage:

  • Personal belongings (such as clothing, furniture, and electronic equipment)
  • Curtains
  • Portable microwave ovens and portable dishwashers
  • Portable and window air conditioners (easily moved or relocated)
  • Clothes washers and dryers
  • Carpets not included in building coverage
  • Certain valuable items such as original artwork and furs (up to $2,500)
  • Food freezers and the food in them (not refrigeration Please)

What is not covered under a flood insurance policy

For the avoidance of doubt, your flood insurance policy will not cover the following:

  • Avoidable damage caused by moisture and mildew
  • Damage caused by earth movement, even though the earth movement is caused by flood
  • Financial losses caused by business interruption
  • Additional living expenses (ALE). This is covered under homeowner insurance.
  • Loss of use or access of the insured property
  • Property and belongings outside of an insured building
  • Most self-propelled vehicles such as cars, including their parts
  • Currency, precious metals, and valuable papers such as stock certificates

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How to Get Cheap Flood Insurance Quotes

The fact that National Flood Insurance Program NFIP determines your coverage and premium does not mean you can’t do anything on your own to lower your flood insurance premium. There are certain steps you can take or things to put in place for you to enjoy cheap flood insurance rates. Below are basic steps you need to take in order to lower your flood insurance rates:

Locate your home outside the floodplain: A lot of people, especially first time homebuyers, usually make the mistake of assuming that every cheap home is a good buy. Some properties are cheap because they are located in a special flood hazard area. If you buy such property, the money you will need to pay on flood insurance premium annually may be too high. This may even cancel the savings you must have made at the point of purchase. So, if you desire cheap flood insurance rates, it is better to build your home in an area outside the floodplain. If you have already built your home in designated Special Flood Hazard Areas (SFHA), you may consider relocating to an area outside the floodplain. Although this may be quite costly initially, you are going to make a lot of savings on annual flood insurance premium. Even if you still wish to insure the property against losses caused by flood, as no property is totally free from flooding, the premium is going to be very low.

Elevation: If your home is located in a coastal area, it makes sense to elevate the living areas of your home above the base flood elevation. National Flood Insurance Program (NFIP) believes that this is the fastest way to reduce the cost of your annual flood insurance premium.  It stressed further that if you can elevate your home just a foot above your community’s established base flood elevation, you can save up to thirty per cent of the cost of your annual flood insurance premium. It means that if you can raise it higher, you can be saving around fifty per cent of your annual premium. However, this comes at a cost just as relocation will cost you money. The main advantage of this over relocation is that, the result is faster.  If you have just elevated your home, you will need to obtain Elevation Certificate (EC). FEMA needs the certificate for the following purposes; (i) To provide  elevation  information  necessary  to  ensure  compliance  with  community  floodplain  management  ordinances; (ii) to  determine the  proper  insurance  premium  rate for new or substantially improved structures in designated Special Flood Hazard Areas (SFHA); and (iii) to  support  a  request  for  a  Letter  of  Map Amendment  (LOMA)  or  Letter  of  Map  Revision based on fill (LOMR-F). Without the Elevation Certificate (EC), you may still be subjected to the existing high flood insurance premium.

Foundation Openings: You can provide openings in the foundation of the house in order to allow easy passage of floods. Flood openings should not be mistaken for windows, doors and the garage doors. If your home is located in the floodplain, there are specifications that your flood opening must meet before it can qualify for any discount. Your building must fully comply with IBC/IRC minimum building code requirements for foundation opening to enjoy discount. Partial compliance will not reduce your flood insurance premium. Specifically, FEMA expects buildings in the floodplain to have at least two openings with 1 sq. inch of opening per sq ft of enclosed area and the bottom of those openings can be no higher than 1ft above the exterior finished grade.

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Utilities: Where you place certain essential equipment such as air conditioner units, water heater, furnace and other electrical equipment can affect the flood insurance premium you will be asked to pay. It can increase or reduce your annual premium. If you keep your equipment in a place that is below the base flood elevation, your annual premium will increase. But if they are kept above the base flood elevation, you can be granted discounts.

Maximize Your Deductible: Deductible is the amount you are willing to pay as out of pocket expenses in case your building is affected by flood. If you increase your deductibles, this will help you lower your premium. However, if your home is financed, your mortgage lender may set a limit for your deductible. Your deductibles will apply separately to building and contents with different amounts to choose. You can opt for the maximum amount of deductible laid down in the Preferred Risk Policy (PRP) of Standard Flood Insurance Policy (SFIP) if applicable to you. Preferred Risk Policy (PRP) is a lower-cost flood insurance policy available to homes outside the SFHA. It offers fixed combinations of building/contents coverage limits or contents-only coverage. The PRP is available for property located in B, C, and X Zones in Regular Program communities that meets eligibility requirements based on the property’s flood-loss history. It is also available for buildings that are eligible under the PRP Eligibility Extension. The standard deductible for PRPs is $1,000 each for building and contents, applied separately. Optional deductibles are not available for PRPs.

Timely Payments: This may not lower your flood insurance premium but it will ensure that the premium is not hiked. You should not allow your flood insurance policy to lapse so that you can continue to enjoy uninterrupted protection as you don’t know when flood may occur. Besides, if you allow your flood insurance policy to lapse more than ninety days or twice for any number of days, you may be asked to provide fresh Elevation Certificate. You can even lose any discount you might have been enjoying. Therefore, paying your premium on time can actually save you some costs. How do you know when to renew your policy? Your insurer and/or FEMA will send you notice and reminder. If you want to renew your policy, you can contact your insurer or insurance agent. He will help you arrange for the payment. Please note that you need to make full payment for your annual premium to enjoy coverage. If you require further help on how to renew your policy, you can call the National Flood Insurance Program’s Help Centre at 1-800-427-4661.

How to File Flood Insurance Claim

The essence of paying your flood insurance premium annually is for you to enjoy protection in case of any occurrence of flood that might cause you financial loss. If you want to file flood insurance claim, you need to call your insurer agent to report the loss caused by the flood without any delay. Thereafter, you should be expecting a call from an adjuster within one or two days to schedule a meeting with you. Before then, you should take the picture of the flood and move the affected belongings out so that they can dry. When the adjuster arrives, he will definitely require some information from you such as your policy number, insurance company information and when and how best to reach you. You will need to make the pictures of the damaged items and any related documents such as receipts or contractor’s estimates available to him. However, before you allow anybody into your home, it is important that the adjuster identifies himself first. During his visit, he will like to take pictures, measurements and note the extent of damage the flood has caused. Before he leaves, he will provide you with a flood certification number and a suggested proof of loss based on his assessment. Nevertheless, it is not the responsibility of the adjuster to approve or disapprove your claims neither will he tell you whether you claims will be approved. You should not expect any other form of assistance from him. 

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Your proof of loss will be reviewed, signed and sent to your insurance company for processing. Meanwhile when your claims are being processed, you can ask for advance or partial payment as the need may arise. Some situations may even arise that will warrant that you file for additional claim after you have filed your initial claim. This may happen if you later discover additional damage caused by the flood which was not obvious before or during the visit of the adjuster. It can even happen that you later discover that you have under-estimated the cost of repairs. In such case, you will need to file for additional claims. You will then need to call your insurance agent or adjuster to repeat the same process when you filed the initial claims. If your claims are approved, cheque will be issued to you. But if you are are the mortgage holder, the cheque will be written in the name of the mortgage holder if the payment is for structure.

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