Flood Insurance Provides Financial Protection
Release Date: July 24, 2007
Release Number: 1700-041
» More Information on Connecticut Severe Storms and Flooding
WINDSOR, Conn. -- Typical property insurance provides financial protection from losses due to most perils - fire and windstorms, for example - that threaten structures and possessions. However, one peril that represents a significant threat to Connecticut residents is not covered by standard policies...virtually all these policies exclude any insurance for flooding.
"Many people are unaware of their vulnerability to flood damage until it's too late and they experience for themselves the fact that even a few inches of water can cause thousands of dollars of damage and property loss," said Mike Parker, federal coordinating officer with the Department of Homeland Security's Federal Emergency Management Agency (FEMA), home of the National Flood Insurance Program (NFIP). "This is truly unfortunate for people who could have protected their assets by buying flood insurance."
Congress created the NFIP in 1968 to assure that Americans can buy flood insurance and to reduce future flood damage through floodplain management. NFIP provides flood insurance through private insurance agencies and insurance companies. To locate an agent who sells flood insurance in your area, assess your property's flood risk or learn more about flood insurance, visit the NFIP Web site, www.FloodSmart.gov.
"The flooding we experienced along several rivers in April, which brought FEMA in to provide needed aid and assistance, is a reminder for all residents of the damage floods can do," said Governor M. Jodi Rell. "Homeowners, renters and business owners can all obtain flood insurance through the NFIP - and they would all benefit if they did so."
Who can buy flood insurance?
NFIP insurance is available for most types of residential or commercial buildings. Separate policies are available for a building's contents. Renters may purchase contents coverage for their furnishings, clothing, and many other types of personal possessions.
Building property coverage insures not only the insured building and its foundation, but many of the items that improve the building to make it more habitable, such as central air conditioning and water heaters.
Contents coverage insures such items as clothing, furniture, and electronic equipment; curtains; portable and window air conditioners; washers and dryers; and food freezers and the food in them.
If you have an insurance claim, the insurance adjuster will be able to process your claim more quickly when you can prove how much items cost at the time of purchase. While you are not expected to keep receipts for every household item and article of clothing, it will help to speed your insurance claims payments if you have receipts to show what you paid for higher priced goods, such as electronic equipment, wall-to-wall carpeting, furniture and major appliances.
Some flooding damages are not covered by either building or contents coverage. These include damage caused by moisture, mildew, or mold that could have been avoided by the property owner; property and belongings outside of a building such as trees, plants, wells, septic systems, walks, decks, patios, fences, seawalls, hot tubs, and swimming pools; living expenses such as temporary housing; financial losses caused by business interruption or loss of use of insured property; and most vehicles.
What types of policies are available?
Under the NFIP, a homeowner can buy up to $250,000 of coverage for the structure and, for homeowners and renters alike, up to an additional $100,000 for contents. Commercial buildings can be insured for up to $500,000 and business contents can be covered for up to $500,000. For those who need higher policy limits, private insurers may offer policies with high deductibles that are intended to use an NFIP policy to satisfy deductibles.
"Like all other types of property insurance, the NFIP bases insurance premiums on the degree of risk," said Ron Lansverk, a Certified Floodplain Manager with NFIP. "We map risk in all areas of Connecticut. Those in areas where flooding is less likely can pay significantly less for a policy than the premium on properties where flooding is more likely. Choosing a higher deductible will lower the premium you pay, but will also reduce your claim payment."
Generally, physical damage to your building or personal property directly caused by a flood is covered by a flood insurance policy. For example, damages caused by a sewer backup are covered if the backup is a direct result of flooding. However, if the backup is caused by some other problem, the damages are not covered.
In most cases, there is a 30-day waiting period from the time you purchase the policy until it takes effect. "You can't wait until a storm is on its way to buy insurance that will cover you for damage from that storm," Lansverk said.
If an insured property has repeated claims for flooding, it could be eligible for a FEMA mitigation grant for property improvements that reduce the likelihood of future flood damages. Most NFIP policies include coverage for the increased cost of compliance (ICC), which provides up to $30,000 of the cost to elevate, demolish, or relocate your home if local law requires you to make such changes.
Practicality of having flood insurance
The following illustrates the value of having flood insurance versus not having it: A family with NFIP and a family without NFIP bought similar homes in 1997 and had everything in common except flood insurance. For ten years, Family NFIP paid $1,000 per year for flood insurance coverage and homeowners combined, while Family Non-NFIP saved money by purchasing only a standard homeowner's policy without flood insurance for $500. Both houses were worth $140,000 before the wind and storm surge from a hurricane totally destroyed them in 2007.
| The Insurance Coverage | Family NFIP | Family Non-NFIP |
|---|---|---|
| Annual homeowner's insurance premium | $500 | $500 |
| Annual flood insurance premium | $500 | $0 |
| Total insurance premiums paid since 1997 | $10,000 | $5,000 |
| The Loss Experience | ||
| Total damages from hurricane | $140,000 | $140,000 |
| Plus ten years of premiums | $10,000 | $5,000 |
| Sub-total | $150,000 | $145,000 |
| Less insurance payout after deductibles | $138,100 | $18,600 |
| Out-of-pocket cost to rebuild | $11,900 | $126,400 |
Today, Family NFIP remains financially stable even after their home is destroyed. This year, should they choose to rebuild on the same lot, they can do so on an elevated foundation which will place their home's sub-floor structure at least three feet higher and thus able to withstand the flood level that ruined their prior residence. They will then have a safe, modernized, more valuable version of their original house with their only out-of-pocket costs being $11,900 paid out for premiums over ten years and a deductible. They may also use their insurance benefits to buy or build elsewhere.
The family without flood insurance has fewer options. Family Non-NFIP was able to collect a $18,600 payout for the damaged caused by wind and flying debris, and nothing for flood damage. Although this family saved a few dollars by not buying flood insurance, they're short more than $126,000 after the loss of their home. They are also faced with the costly matter of clearing their lot of the debris which is all that remains of their home.
FEMA coordinates the federal government's role in preparing for, preventing, mitigating the effects of, responding to, and recovering from all domestic disasters, whether natural or man-made, including acts of terror.
Last Modified: Tuesday, 24-Jul-2007 16:07:29