Flood insurance is a tough topic, mainly because it is never on anyone’s radar until it is too late. In most cases you either definitely need flood insurance or you don’t and that is part of the problem. Now, because of recent events in nearby Ellicott City, MD and parts of West Virginia, I have been receiving a lot more questions about flood insurance. So, what I’m going to do is break it down for you in a nice enjoyable blog.
To begin, here is a clear definition of “flood” from www.floodsmart.gov, which is your go to page for more flood insurance information:
Flood – 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 the policyholder’s property) from one of the following:
- Overflow of inland or tidal waters
- Unusual and rapid accumulation or runoff of surface waters from any source
- Collapse or subsidence of land along the shore of a lake or similar body of water as a result of erosion or undermining caused by waves or currents of water exceeding anticipated cyclical levels that result in a flood as defined above
Next, lets discuss your homeowners’ insurance policy. Did you know it does not cover you against a flood? Wait?!? What?!? Why?!? Like most things it comes down to the business of making money. I mentioned it before about flood insurance, you either definitely need it or you probably don’t need it. If you are in a flood zone then you definitely need flood insurance, if you live anywhere else, you might not need it. To an insurance company this situation creates something that is called adverse selection; which would be the purchase of flood insurance only by the people most affected by the peril of flood. Those people not in flood zones would opt out of buying flood insurance therefore leaving the insurance company only covering the riskiest people, and insurance companies don’t do risky. Also, the insurance company wouldn’t be able to collect the appropriate amount of premium to cover the overall cost of flood claims in a given year. Similar to a government mandated health insurance plan.
Most traditional insurance companies don’t offer flood insurance the government created NFIP, National Flood Insurance Program. This program is a government agency that is in charge of mapping and determining all flood risks in the United States. By all flood insurance being under one roof, so to speak, the price you get from any insurance agent on a flood policy should be the same. And your premium is ultimately the lowest it could possibly be because all the flood insurance premiums from across the country are going to one “insurance company”.
So who is in a flood zone and needs flood insurance? Well, this is all determined by the NFIP and can be found on their FIRMs. FIRM stands for Flood Insurance Rate Maps and is the culmination of all the work the NFIP does taking into account more factors then you care to think about. Once mapped, you will fall into one of two categories: high risk or moderate to low risk. When creating flood maps both historical factors and future anticipations are factored in. Just for example, if you live near a levee, you used to be moderate to low risk flood zone but in recent years most of the levees in the United States have fallen below government regulation standards and you might now be in a high risk zone.
What is a high risk zone? A high risk flood zone is determined as an area that has a 1-4 chance of flooding over the course of a 30 year mortgage. Because of these statistics, if you are buying a home in a high risk zone, the bank will require you to purchase flood insurance. Any flood zone that begins with the letter “A” or “V” has been determined as a high risk and these areas are federally regulated to have flood insurance if there is a mortgage on the property.
What is a moderate to low risk zone? These are areas that have been determined to, obviously, not be high risk for floods. The fun fact here is that 20% of flood claims that are submitted annually, come from homes in moderate to low risk areas. These zones will all start with the letters “B”, “C” or “X”.
What kind of coverage do you get with flood insurance? Well it is pretty basic, you are buying a separate insurance policy to protect you against the number one natural disaster in the United States, floods. There are only two things that your flood insurance policy will cover: property and contents. However, flood insurance policies have a max limit that you can set on both. The maximum for your property is $250,000 and $100,000 for your contents. When purchasing a house in the DMV area, because of house prices being so high, assume the bank will require the max coverage.
How much does flood insurance cost? This is where everything I have talked about so far will come into a littler better picture. The difference between being in a high risk flood zone and a low risk flood zone can be ten times as much. Most of my flood insurance experience comes in Alexandria, VA and the difference can be shocking at times. A home buying the maximum limits in a low risk flood zone might pay $300-$400 a year. That same home a mile closer to the river and in a high risk flood is probably looking at $3,500 a year.
If you are buying a house or thinking about buying a house it takes less than one minute to look up the flood zone. If you are 3 weeks into buying a house and the bank finds out you’re in a flood zone (they order the flood report the same time as the appraisal), you just added a huge monthly payment to your mortgage and you could be in a tough spot.
If there is anything you should leave this blog with, and any blog of mine. More information is always good when making a decision. If you have any questions about flood insurance or any type of insurance Bridge First Insurance (BFI) is here to help and because we are your Best Friend in Insurance (BFI) we just want to help you make a more informed decision.
Speak with a Bridge First Insurance Agent today! (571) 249-3857
Previously on the Blog:
Dave has accumulated extensive knowledge of commercial insurance and the skill set that it takes to succeed. In 2013, he and co-founder Jack Cordes, joined forces to establish Bridge First Insurance. Through Bridge First Insurance, Dave utilizes his knowledge and unique expertise to offer clients the best care in insurance.