Cannon Financial Institute

Ten Things FAs Need to Know About Federal Flood Insurance

1) Homeowners insurance does not cover damage from floods or significant wind damage. If you are a renter, your renter’s insurance does not cover flood damage to your possessions.

2) Flood insurance is provided by the National Flood Insurance Program and administered by FEMA (Federal Emergency Management Agency). The program was established by Congress in 1968 because private insurers were withdrawing from the market due to unpredictable losses. You can get details by going to this website: https://www.fema.gov/national-flood-insurance-program

3) FEMA: “Homes and businesses in high-risk flood areas with mortgages from federally regulated or insured lenders are required to have flood insurance.” * If you or a client owns a primary dwelling with a mortgage and you have sustained flood damage, you may have flood insurance and not be aware of it.

4) You can purchase flood insurance for your primary dwelling only and not for second homes.

5) How do I buy Federal flood insurance? You must buy it through an insurance agent. You cannot buy it directly from the government. Your agent will also know if your community participates in the program which it probably does. Premiums are set by the Federal Government based on the risk profile of your community so all insurance agents will charge the same amount for the same policy.

6) How does it work? It works like other insurance policies with the premium calculated based on risk. If your home is in a Special Flood Hazard Area, as determined by Flood Insurance Rate Maps issued by the Federal government, then your premium will reflect that level of risk.

7) What does flood insurance cover? It covers damage to your dwelling but not the contents. KEY TAKEAWAY: You must purchase a separate policy for your dwelling and another policy for your contents. Example: after you meet your deductible, flood insurance will pay to replace your damaged drywall. However, your furniture and other personal property will only be replaced if you have the separate policy for contents. (Both are issued by the National Flood Insurance Program).

8) This cannot be stressed enough since many people think flood insurance pays for everything. It does not. Says FEMA:

Separate policies for your dwelling and contents and building coverage are purchased separately (for the Preferred Risk Policy, there's an option for combination coverage for both contents and building coverage), but there are always separate deductibles. Unless you have contents coverage, your flood-damaged contents are not covered. **

9) FEMA grants are completely different from flood insurance. These grants either assist in making your domicile habitable or pay for temporary housing. These grants do not pay for the complete repair and refurbishment of your home. If you have been displaced by a flood and need immediate assistance you can apply online here: https://www.disasterassistance.gov/

10) Should you buy flood insurance? That depends on the level of risk you are willing to take. The majority of policies are on property in Florida and Texas. However, reports FEMA, “More than 20 percent of flood claims come from properties outside the high-risk flood zone.” This is worth thinking about. In many locales which suffer severe flooding, uninsured homeowners cannot afford to repair their properties and often abandon them. This is painfully evident even now in New Orleans. In many nice neighborhoods, you will still see abandoned homes.

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Resources:

[*]  https://www.fema.gov/national-flood-insurance-program/How-Buy-Flood-Insurance

[**]  https://www.fema.gov/national-flood-insurance-program/How-Buy-Flood-Insurance

Contributing Writer: Subject Matter Expert Charles McCain

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