Do I Really Need Flood Insurance?

Lou Andrews Smith is a homeowner in Sacramento who decided to let his flood insurance lapse for two reasons. "First, it just cost too much -- I had the standard policy and it's $1,400 a year now," he says. "Second, we've had years of drought and near-average rainfall. I don't live near a river or lake, so I don't feel that threatened."

Even if you don't live near the ocean or a river, that doesn't mean your home is flood-proof. And contrary to what people think -- that only people who live next to bodies of water are eligible for flood insurance -- anyone can buy flood insurance regardless of where they live.

"In fact, everyone lives in a flood zone," says Norm Ashford, a flood insurance specialist for the FEMA government agency. "The only difference is whether your home is located in a low-risk or high-risk flood zone." In Sacramento, where Smith lives, only residents in special flood hazard areas are required to carry flood insurance, but in fact, any area protected by a levee is considered to be in a floodplain, and that includes most of the city.

Even if you live in the driest part of the Southwest, you should at least consider it because, according to Ashford, the risk of flooding is 26 times greater than that of having a fire destroy your home. "It's the greatest single cause of property loss."

So if you're considering skipping the flood insurance, maybe you should first be familiar with how it might protect you.