Key Factors to Consider When Purchasing Flood Insurance

October 2, 2023

 

 

Many homeowners think their standard homeowner's insurance policy covers flood damage, but this is false. Flood insurance is a separate coverage option that can be purchased from the National Flood Insurance Program (NFIP) or private insurers. For those who live in a high-risk flood zone, their mortgage lender may require them to obtain an NFIP policy. For those who don't, it is still a wise purchase.

Location

Many homeowners assume that standard home insurance policies cover flood damage. Unfortunately, they are wrong. The majority of standard homeowners' policies exclude flood coverage. It would be best to have an additional Georgia flood insurance policy with a specific rider to protect your property and assets to cover flood-related damage. The good news is that there are several options for purchasing a separate flood insurance policy. Most real estate professionals and mortgage lenders will require that you have homeowners' insurance before a lender will approve a loan. However, to purchase a standard homeowners' policy that will include the added protection of flood coverage, you should first check with the National Flood Insurance Program to see what your home or apartment is located in. FEMA has a mapping tool that can help you determine whether or not your home is in a high-risk area. Remember that while the map shows areas likely to flood, they do not show all possible flooding areas. For example, areas that could flood from localized drainage problems or ice jams are not typically mapped. If your home is in a high-risk zone, you may be legally required to purchase flood insurance through the NFIP. You may also purchase a Preferred Risk Policy the NFIP offers for properties in moderate- to low-risk zones at a lower cost. In addition, if your home has been recently remapped into a higher-risk zone, you may be eligible for a new premium discount.

Replacement Cost Value

If you don't have replacement cost coverage, the amount you receive for lost or damaged items is based on actual cash value (ACV). If your 15-year-old recliner is damaged in a flood, it will be reimbursed for the price of a used one—not the total price of a new one. While replacement cost is more expensive than ACV, it provides the most comprehensive and reliable form of coverage. If you lose a substantial portion of your property in a flood, having this coverage ensures you can replace it without relying on loans or government aid. A policy with RCV will have higher premiums than one with ACV, but it's well worth the investment. Depending on how long you have lived in your home or business, it may be worth significantly more now than when it was first built. If you have unfinished remodeling projects, replacement cost coverage can help pay for them after a flood and prevent you from spending money on an entirely new building. You can purchase a federal flood insurance policy through a licensed insurance professional. There is usually a 30-day waiting period before a policy takes effect, but this can be waived in certain situations. If the NFIP's standard limits aren't enough to cover your assets, some private insurers offer "excess" policies with higher maximums.

Coverage Limits

When considering flood insurance, it is essential to consider the amount of coverage that may be available. The most common form of flood insurance is through the National Flood Insurance Program (NFIP), run by the federal government. NFIP policies are typically required for mortgages in high-risk flood zones, although they may be a good choice for any property owner. The NFIP offers up to $250,000 in building and contents coverage for single-family dwellings or residential condominium units. If the NFIP's limits aren't enough to cover a person's assets, private insurers can offer "excess" flood insurance policies, which provide additional protection above the NFIP maximums. However, this option is usually available only after a waiting period and comes with higher rates than standard NFIP policies. An excellent way to determine the amount of insurance needed is by having a home inventory, which can help owners determine the value of their belongings and ensure they are protected in the event of a flood. In addition, an insurance agent can help homeowners determine how much NFIP coverage they should buy. If a person isn't planning on buying a home but wants to know if their property could be at risk of flooding, FEMA offers an online map showing whether the location where they are considering purchasing a property is in a high-risk flood zone. The website also lists things to consider and questions to ask when evaluating a potential purchase.

Exclusions

As with most insurance policies, some flood insurance exclusions must be remembered. For example, most property insurance policies exclude coverage for water damage from floods if the home is in an area with a history of flooding or below what would be typically considered a first-floor level in a dwelling (like a crawl space or basement). Homeowners and renters insurance may cover some of this damage, but separate flood insurance protects against it. Also, items like cash, precious metals, and valuable paperwork (like savings bonds and stock certificates) are not covered by NFIP or private market flood insurance policies. It is a good idea to check FEMA's flood map portal to determine whether your residence is in an area at risk of flooding. Many mortgage lenders require homeowners in high-risk areas to purchase flood insurance to help reduce their risk of financial loss. You may also want to investigate whether your community has a history of frequent flooding or is prone to heavy rains, snow melt, and rapid accumulation of surface water or runoff.

 

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Carlos Diaz
I believe in making the impossible possible because there’s no fun in giving up. Travel, design, fashion and current trends in the field of industrial construction are topics that I enjoy writing about.

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