We recently purchased a home and while going over our mortgage details with the mortgage broker, my husband asked about flood insurance. The mortgage broker’s response was one that left my husband feeling a little embarrassed for even bringing up the subject. We were told that “flood insurance would be incredibly expensive” and that it was unnecessary, because “Oklahoma has been in a drought for 5 years.”
Fast forward to May 2015. Oklahoma and Texas went from a severe drought status to flash flooding in the blink of an eye. The nearby lake went from a 9% water level to 100% full with 6 floodgates open in 3 short weeks. Fortunately, our new home was spared, but as I watched nearby homes get washed away on the news, my heart sank and I wondered how many other homeowners were misinformed about flood insurance.
It’s time to set the facts straight.
1. It is NOT covered in standard homeowners or renters insurance.
Flood insurance is a separate form of insurance offered through the National Flood Insurance Program (NFIP), which is run by the Federal Emergency Management Agency (FEMA). Private insurers may offer excess coverage to that offered by NFIP. It is important to note that floods are not one of the covered perils in most comprehensive homeowners insurance policies.
Other excluded perils to note: ordinance or law (can be added), earthquakes (can be added), neglect, war or nuclear exposure, intentional loss or power failure (unless followed by a covered peril).
2. You don’t need to be in a high-risk area
According to FEMA, more than 25% of flood insurance claims come from low- to moderate-risk areas. In the past 5 years, all 50 states have been affected by some sort of flooding.
In many cases, mortgage lenders will require borrows to purchase flood insurance if they are in a high-risk zone. All others must decide if flood insurance is right for them.
To see what flood risk you fall under, check out the official site of the NFIP: https://www.floodsmart.gov/floodsmart/
3. You Must be Eligible
Flood insurance through NFIP is only offered in communities that participate in the program. To see if your community qualifies for National Flood Insurance, go to FEMA’s website at: https://www.fema.gov/national-flood-insurance-program/national-flood-insurance-program-community-status-book
4. It is not expensive
Flood insurance premiums for homeowners in low- to moderate-risk areas start as low as $137 a year to cover $20,000 worth of structure and $8,000 worth of contents in your home. Flood insurance for renters starts at just $44 a year to cover $8,000 worth of belongings. In the grand scheme of things, those costs are incredibly low compared to the potential loss a homeowner could experience from water damage.
Where do you buy flood insurance?
National Flood Insurance is sold through many private insurance companies. You can check with your current insurance agency to see if they offer it, or go to: https://www.fema.gov/wyo_company
What is the difference between flood insurance and federal disaster assistance?
Federal disaster assistance normally comes in the form of a zero-interest or low-interest loan and only when the president formally declares a disaster in your area. This means that the funds have to be paid back along with your mortgage. Flood insurance, on the other hand, does not need to be paid back and will cover damages even if your home was the only one affected.
While flooding may not be common in your area, insurance is about hedging your risk by paying a little in each year to offset a potentially catastrophic dollar amount in damages should a flood occur.