Understanding the Basics of Flood Insurance Coverage

Understanding the Basics of Flood Insurance Coverage

So, what is flood insurance, and how does it work?

It seems that almost daily, we see news coverage of one area or another that has been seriously affected by flooding, and you may be asked to obtain flood insurance, or increase the coverage you already have.

So, what is flood insurance, and how does it work? It falls to the Federal Emergency Management Agency (FEMA) to study areas and create flood maps, which indicate the risk of flooding and how often FEMA expects floods to occur.

Based on FEMA’s flood maps, a risk factor is determined, which will in turn dictate the type of coverage required. Homes are categorized as being in low/moderate – or high-risk areas. Premiums are then determined and policies issued through the National Flood Insurance Program (NFIP), which was established in 1968 and renewed in 2012, and is set to expire later this year.

Factors that determine risks when issuing an insurance policy include elevation of the lowest point of the structure, the number of floors, and the age of a property.  Flood insurance is always written as coverage above and beyond traditional homeowners coverage. Typical insurance policies are very specific as to what they will and won’t cover, and often situations that are remotely related to flooding, such as backed-up sewers that happen during storms, may require special riders and premiums.

According to FloodSmart.gov, the average annual premium for a flood insurance policy is $700, and premiums are paid annually, in advance.

Content provided by MiLEND, Inc.