Insurance Advisor at Oliver L.E. Soden Agency, Inc

Flood Insurance for Homeowners

When it comes to flood insurance, nothing is cut and dry, something you will learn if you live in a floodplain and look to take out a policy. The first place most people go is to their private insurer. Flood insurance must be able to be added to an existing homeowner's policy, right? Well, not exactly.


Why Don’t Private Insurers Offer Flood Insurance?


Private insurers generally do not cover flooding because the numbers don’t add up. Insurance is based on formulas and math, and the goal is to have the risk spread across a large group of people so that there are more people paying than collecting. Don’t look at this as being harsh though, as people who do need to file a claim count on the money to be there. If everyone is collecting, there wouldn’t be enough money to file claims. So at the end of the day, insurers must be very careful about the numbers.


There are some private insurers that offer flood insurance to a select group of individuals, such as those who live in expensive homes or those who are not eligible for the federal program. Some private companies also offer supplemental flood insurance that can be purchased in addition to the federal program.


What is the National Flood Insurance Program?


The National Flood Insurance Program is the federal program we’re referring to, and it’s offered to homeowners in communities in flood zones. In 2012, Congress passed the Flood Insurance Reform Act of 2012 that made this insurance more sustainable and financially sound over the long term. Though some rates were eliminated, many homeowners have seen their premiums rise. The goal of this Act was to adjust the rates so that homeowners are paying for the real risk of their property.


Is Flood Insurance Mandatory?


Flood insurance is required on some properties. Homes and businesses located in moderate-to-low-risk areas with mortgages from federally regulated or insured lenders are required to have flood insurance. Just because you don’t live in a known floodplain doesn’t put you in the clear, however. People outside of mapped floodplains file 25% of all National Flood Insurance Program flood insurance claims and receive one-third of Federal Disaster Assistance.


What is Covered in the Policy?


Keep in mind that not all flooding is considered a flood. Flood insurance does not protect you from bursting pipes, leaking appliances, broken toilets, problems with landscaping or backed up sinks. If you do take out a flood insurance policy, it’s important to understand exactly what is and isn’t covered.


Additionally, insurance from the federal program is generally limited to $250,000 for residences and $500,000 for businesses. Yet since flood waters can completely damage a structure, this isn’t that much coverage. You can purchase excess flood insurance that grants you another $250,000 of additional coverage in case your home was completely lost.


For more information about obtaining flood insurance from a private insurer, contact Hal Soden.