Flood Insurance: An immediate requirement

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By: NathanielCopeland
on 5th Nov,2012

The damage was staggering, an estimated cost of $52.
Flood Insurance: An immediate requirement

In the wake of Hurricane Sandy and the trail of death and destruction it left on its way along the East Coast, homeowners across the country were rattled by reports of massive floods sweeping New York and Jersey. The damage was staggering, an estimated cost of $52.4 billion making it the second costliest hurricane in US history ranking right below Hurricane Katrina.

The live news feeds from places like Atlantic City and New York were simply surreal. Watching those very same images of drowned and decimated homes does raise the serious concern of creating a financial safety net in case the worse comes to pass.

Federal Emergency Management Agency (FEMA) has become a household name post Hurricane Sandy and although Federal disaster relief aid is the only option for long term recovery, private flood insurance is not a bad idea to invest in.

Why opt for flood insurance?

Homeowners are the worst affected when it comes to natural disasters like storms, floods and earthquakes and the funny thing is, home insurance policies cover none of them. A regular run of the mill HO policy would cover the average fire, wind and water damage but when it comes to floods, the damage is promptly attributed to an ‘Act of God' and is written off.

Although FEMA and other private disaster agencies actively try to raise awareness among people, their efforts have been mostly ignored until now. Flood insurance is essential, especially if you are residing in one of those costal states which are naturally more prone to getting beat up during the storm seasons.

What is the role of FEMA in flood insurance?

Flood insurance are specialized policies underwritten by FEMA and the National Flood Insurance Program (NFIP) and provides financial protection to around 5.6 million American consumers and businesses. Private carriers also sell flood insurance policies through agents but the financial backing for those polices also come in through FEMA.

There is also one very good reason to buy flood insurance early. A policy has a 30 day waiting period before it comes into effect and for millions of Americans who only got to know about Sandy's imminent landfall in mid-October, it was already very very late.

How much does it cost and cover?

The cost of having your property incurred against floods varies according to the area it is situated in. FEMA draws up a flood map every year which categorizes flood prone areas according to the level of risk. The average policy price tag is about $585 per year per property but costs vary according to the risk level of the area on which the property is situated.

Normally, when you buy a house in an area which is at risk of floods, the lender usually imposes the financial responsibility of carrying flood insurance on the homeowner. Irrespective of that fact, flood insurance policies are also available to homeowners nationwide even if the property to be insured is not at risk of bearing flood damage.

FEMA backed flood insurance policies cover damages up to a limit of $250,000 on structure and another $100,000 on personal property. In case of businesses and commercials properties, coverage is limited at a maximum of $500,000 for structure and content each. Claims must be filed with the insurance carrier the policy was purchased from which is usually also the home insurer as well.

There are downsides with flood insurance policies as well. Unlike homeowner's insurance, flood policies do not cover the cost of temporary relocation. Neither do they pay to cover the cost of damage sustained inside the basement unless there are water purification, heating and air conditioning systems involved. Moreover, flood insurance generally covers personal property and possessions at cash value instead of the cost of replacement.

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