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How Flood Insurance Works


What is flood insurance?

Take a deep breath. Smell that? Ah, spring. As surely as the crocuses bloom and people start sneezing, the rains will come. And with the rains, come the floods. Runoff, winter melt, overflowing streams and ice-clogged rivers. Whether you live in Missouri, upstate New York, Connecticut or Iowa, when it rains, it pours, and when it pours, it can be devastating.

Floods are one of the most common hazards in the United States, resulting in billions of dollars in damage each year. Some are slow to form. Others happen in a flash. Are you ready? Probably not. The Insurance Information Institute found that in 2011, only 14 percent of U.S. homeowners had flood insurance. That number was four percent higher than the year before. Most of those who bought flood protection -- 19 percent -- live in the South, while 13 percent live in the Midwest [source: Bradenton Herald].

Flood insurance is available to those in flood-prone areas. Most standard insurance policies cover water damage from bursting pipes and broken faucets. However, the policies don't protect a homeowner when a river overflows its banks or surface water of any sort runs into the house. That's why in 1968 congress created NFIP to help property owners rebuild and replace their belongings after a flood.

The standard flood insurance policy pays for "direct physical damage" to a home or building. Property owners must buy a separate policy to protect what's inside the buildings. Homeowners can purchase up to $250,000 in coverage for their house and up to $100,000 for their possessions. Renters can buy flood insurance, too [source: FloodSmart.gov].

FEMA doesn't sell flood insurance directly. The agency works with private insurance companies, who then sell coverage to their customers. The government sets the rates, which do not change from company to company or agent to agent. The cost, of course, depends on a variety of things such as how much insurance a homeowner wants, and how flood-prone the neighborhood is [source: FloodSmart.gov]. The average yearly premium is $520 for $100,000 worth of coverage for a home without a basement, and $615 a year for a home with a basement [source: Powell].

Filing a flood-insurance claim is like filing a regular claim on your homeowners insurance. Once you file a claim, an adjustor will survey the damage. You will then have to provide a "proof of loss" form, which must be submitted to the insurance company within 60 days [source: FloodSmart.gov].


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