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.

How to Get Flood Insurance

Flood damage is not covered under your regular home insurance policy. (See "Home Insurance: What's Covered and What's Not.") And private insurance companies won't write flood insurance policies because they're considered too risky and not profitable. The only place that offers it is the National Flood Insurance Program (NFIP), run by FEMA, but you can obtain a policy through the same licensed insurance agent that helps you with homeowner's insurance.

How You Stand to Gain

Nationally, the average flood insurance claim is about $28,000, and a quarter of total claims filed by people in low-to-moderate risk zones. Floodinsurance is mandatory in high-risk zones, but optional otherwise. You can find out if you're in a low- or high-risk zone by going to to find out your risk level and get a general price range for flood insurance for your home.

What's Covered, What's Not

However, there are a few elements of the NFIP program that you should be aware of before you buy:

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First, its definition of a flood is very specific. It is:

"(a) general and temporary condition of partial or complete inundation of two or more acres of normally dry land area or of two or more properties (at least one of which is your property) from: overflow of inland or tidal waters" and "unusual and rapid accumulation or runoff of surface water from any source," among other factors.

The term "surface water" is an important one, because NFIP covers flooding that occurs on the surface of the land, like heavy rains, but not ground saturation from other sources that may seep into a home, such as sewer backups.

Secondly, the flood insurance does not give full-replacement coverage, unlike most home insurance policies, which would pay to restore a home to its original condition. Contents coverage must be purchased separately, which pays to clean clothes and replace furniture, electronics, carpets and curtains. A standard flood insurance policy includes only limited basement coverage. So while flood insurance will restore your basement to the state of an unfinished basement (cement floor, new wall framing and bare drywall), it won't replace carpet, furnishings and other water-damaged possessions. However, the policy will replace furnaces, plumbing, electrical fixtures, freezers and other equipment that makes your home function.

What to Do After a Flood

As with a home insurance policy, you should take quick action after disaster strikes by taking pictures to record the extent of the flooding and damage.

FEMA's Ashford says the cost of flood insurance is affordable. Those in low-to-moderate risk areas can get a preferred risk policy ranging from $119 to $395 a year to cover the home and its contents. High-risk area rates can go up to $2,633 a year. Lou Smith of Sacramento could switch from his standard policy of $1,400 to a preferred-risk policy of just $355 a year. If you're a renter, you can still get flood insurance to cover the contents in your rental apartment or home.

Deductibles start at $1,000 for residential policies and can be raised to obtain a lower premium. However, rates can change, as when FEMA updates its maps that assess the flood risk in various parts of the country.

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