Many homeowners, landlords, condo owners, renters (of apartments and condos) and businesses overlook the importance of flood insurance in protecting their real property and/or possessions. They do not know that the typical homeowner’s or commercial insurance policy doesn’t cover flooding.
In the insurance industry, a flood is defined as a temporary condition that results in a partial or complete submersion by water or mud. To qualify as a flood the event must also affect two or more properties or two or more acres of land. It’s wise for consumers to consider buying this kind of coverage. Costly flooding can happen anywhere, anytime. And nature is not the only cause. Land development and old or clogged drain lines are two other causes of flooding.
Fortunately, through insurance agents, the National Flood Insurance Program (NFIP), a federal program, offers insurance to all people whether the property is in low-to-moderate or high-risk flood area. According to the NFIP, a typical flood policy that provides $100,000 in coverage costs about $400 a year. On the other hand, a consumer who has to take out a 30-year federal disaster assistance loan for $50,000 at 4 percent interest, for example, will pay $240 a month.
The NFIP says that from 2008 to 2012, the average residential flood claim was more than $38,000, and for businesses it was $87,000. Furthermore, a quarter of businesses that close following a flood never reopen. The amount a policyholder pays depends on whether the property is in a low-to-moderate or high-risk flood area, the year the property was built, the number of floors, the location of contents and other factors.
Flood policies cover the building and its contents. Different coverage amounts are available. Renter’s policies cover contents only. Usually there’s a 30-day waiting period between the time the policyholder makes the first payment and the time the policy takes effect. An exception to this rule is when the policyholder has a mortgage loan. In that case, the loan closing date is the effective date of the policy.