National Flood Insurance Program: Buying Insurance
Regardless of where you live in the United States — whether in the desert, by a lake, on the coast, in a 100-year floodplain, or atop a mountain — your home is a flood risk. Everyone is at risk for flooding. Floods happen in all 50 states.
Who Needs Flood Insurance?
Since floods can happen to anybody just about anywhere, you probably should consider taking out a flood insurance policy. It's not expensive. If you live in a high-risk flood area and buy a home with a loan backed by a federally insured mortgage, your lender will require that you buy flood insurance.
Where Can You Buy Flood Insurance?
If your community participates, you can purchase flood insurance from your insurance agent through the National Flood Insurance Program. This program is backed by the U.S. government. Note that a seller can also assign an existing flood insurance policy to a new buyer; it is freely transferable.
Does Homeowner Insurance Cover Flooding?
A standard homeowner's insurance policy does not cover flooding. You will need a separate flood insurance policy. Your premiums will be much lower if the home has never had a flood claim.
Here are three ways to find out if a home you want to buy has had a flood claim:
- Order a C.L.U.E. ReportC.L.U.E. stands for Comprehensive Loss Underwriting Exchange. The report gives you a five-year history of a home. Your insurance agent can obtain this report for you, you can buy a copy online, or you can order it in conjunction with a natural hazard disclosure report. C.L.U.E. Reports cost about $20.
- Ask for Seller's Disclosure or TDSIn many states, sellers are legally required to disclose previous property problems, and those disclosures include former flooding. Transfer Disclosure Statements (TDS) and Seller Property Questionnaire forms ask sellers to disclose that type of information.
- Get a Home InspectionA qualified home inspector can conduct a visual inspection of the home and look for signs of water damage or mold. Typically, contracts are contingent on a home inspection, which means buyers, if dissatisfied with the results of the inspection, have the right to demand the refund of their earnest money deposit and cancel the transaction.
You can also receive discounts if your area participates in the Community Rating System (CRS).
How Do Floods Happen?
Most people think that floods occur because of hurricanes or tropical storms, but those natural disasters are not the sole causes. Some areas can also flood due to rising river waters, flash flooding from heavy rainstorms or rapid snowmelt. A flood, in layman's terms, is any sudden accumulation of water or mud in an area that ordinarily is not wet.
As we continue to cut down trees, build new subdivisions and pave parking lots and roadways, there is less natural soil available to absorb water. Moreover, some residential developments are built on top of wetlands because the land is cheap. If water has no place left to sink into the earth, it will cause a flood.
A heavy rain can easily dump a couple feet of water. In two feet of water, a car can float.
Flood Risk and 100-Year Floodplains
First, understand that if you live in a 100-year floodplain, it does not mean your chances of a flood are one in 100 years. It's a confusing term, but a 100-year floodplain assessment means you have a one-in-100 chance of a flood in any given year, or a 1 percent chance each year.
Ask your insurance agent to look at the region's flood maps to determine if your home is located in a floodplain and if so, find out the kind of floodplain and level of risk.
How Much Does Flood Insurance Cost?
The question really is how much does it cost not to have flood insurance. One inch of water can do considerable damage and run into tens of thousands of dollars to fix.
- Coastal Policies: If you live on the coast, the premium will be high. You can insure the building and its contents to a maximum of $250,000, without previous claims, for about $5,000 a year. Renter's coverage for contents of only $100,000 is about $2,200.
- High-Risk Policies: Without a previous claim, premiums are about $2,400 for $250,000 of coverage. Contents-only coverage of $100,000 is about $1,000. According to the government, in high-risk areas, 25 percent of homes flood during the term of a 30-year mortgage.
- Preferred Risk Policies: $250,000 of coverage, without a previous claim, will run you about $317 a year. Contents-only coverage of $100,000 is $196. However, if the home has had a previous flood claim, that premium for $250,000 jumps to $1,251 a year.
We ran a check of the White House. You may be relieved to know it is located in a moderate- to low-risk area. To find out the estimate for a premium on your property, go to FloodSmart.gov and enter your address.
Do not wait for a storm to approach before calling an insurance agent to get flood insurance. Most policies require a 30-day waiting period.
At the time of writing, Elizabeth Weintraub, License #00697006, is a Broker-Associate at Lyon Real Estate in Sacramento, California.