Flood insurance, which is provided by the federal government through the National Flood Insurance Program (NFIP) through private companies and agents, is a valuable asset for nearly any structure. Here is some background to help people understand the benefits of this type of protection and what they should know about it.
Who Should Buy Flood Insurance?
Shockingly, an estimated 25 percent of flood insurance claims come from homes located in medium or low risk flood zones. This is because while floods are commonly caused by rising water, such as lakes or rivers, they can also be caused by melting snow, large amounts of rain, hurricanes, water backup, and other common household experiences. Without flood insurance, the damage caused by the water will most likely have to come out of the pocket of the homeowner. This is why homeowners should carefully consider buying flood insurance, even if they are in a low risk area.
On the other hand, for those who own homes that are in a high risk area, it should not even be a question of if they are going to get flood insurance. On the maps of Flood Insurance Rates, those who are in the high risk zones stand an approximate one in four chance of being flooded over the course of the life of the mortgage. With such a high risk, flood insurance can end up being an enormous lifesaver when it comes to repairing the home after an unfortunate flood.
Anyone who lives in a community that participates in the NFIP can purchase flood insurance. Those who live in Coastal Barrier Resource areas or Otherwise Protected areas are not eligible to purchase National Flood Insurance. Homes or buildings that are entirely below ground or out over water are not covered either. These people should research and discuss with their realtors to learn the best ways to protect their homes.
Understanding How Flood Insurance Works
Flood insurance is a separate type of insurance from standard homeowners’ insurance. There are approximately ninety different private companies as well as 60,000 private insurance agents who sell National Flood Insurance and who can help supply policies to those looking to purchase a policy. The cost of the flood insurance policy will vary depending on the year and type of construction on the home as well as the homes location and estimated flood risk.
Homeowners should be aware that when they purchase flood insurance, there is a thirty day wait period before the policy goes into effect. This means that homeowners can not purchase insurance because they hear on the news that the storm of the century is coming straight towards them. If a flood occurs and damages the home within that thirty day wait period, the home will not be protected.
On the other hand, if the homeowners purchase a flood insurance policy while they are taking out their mortgage, then the thirty day wait period does not apply. That is why it is best to buy flood insurance in the beginning rather than waiting to see if it is going to be necessary. Waiting on buying the policy places the home at unnecessary risk. Some mortgage lenders will make flood insurance required for the loan, in which case the lender may escrow the premiums to ensure coverage.
Benefits of Flood Insurance
Many homeowners mistakenly believe that floods will not happen to them and if it does, their homeowners’ insurance will help. Unfortunately, as previously discussed, everyone is at risk for floods and homeowners insurance policies do not cover flooding. Another misconception is that the federal government will help should the flooding be caused by some natural phenomenon. This is also not true, unless the president declares a disaster zone. Flood insurance offers homeowners peace of mind, knowing that they will be covered should water cause damage to their home.
Cleaning up after a flood, or any home water damage, is a trying experience. Water in the home quickly causes mold issues and even structural damage in just a few days and it can be very difficult to completely dry out the area. Often anything that was in the flooded area, including boilers, hot water heaters, washing machines, and more are damaged if not destroyed. Bad flooding can require calls to professional restoration specialists. Flood insurance helps homeowners tackle the cleanup and repair costs so that they do not have to pay entirely out of pocket.
What can sometimes be troublesome about the need for flood insurance is when a flood map changes. In a recent home sale in Zionsville, the seller was never required to have a flood insurance policy. During the time of home ownership however, the flood maps had been changed creating the need for the buyer of the property to purchase flood insurance in order to get a loan. As you can guess the buyer was none too happy to find out they had this unexpected out of pocket expense.
The seller realizing the could potentially lose a sale agreed to contribute a fairly large chunk of funds to satisfy the buyer.
Home sellers need to be aware of the steps that must be taken to protect their property, as well as to sell their home in the future. The FEMA flood maps changed in 2013 along with the phase out of subsidization of insurance rates for the following types of properties in flood zones: second homes, multi family homes, commercial and properties that have experienced recurring flood damage above the value of the property.
If you happen to be lucky enough not to have a mortgage on your property, the need for flood insurance may not have crossed your mind. In all the years of living at your home, you may never have thought about a policy for flood damage. If you are thinking of selling your property in the near future however, it is extremely important to know what the insurance costs will be.
While you may choose to not carry this insurance, the next buyer will almost certainly required to have it. If the buyer of a home in a flood plain has to get a mortgage, which most buyers do, the lender will mandate flood insurance on the home.
The amount of flood insurance that is required will become extremely important as it will have an effect on the overall value of your property. Is the cost only going to be a few thousand or will it cost the buyer tens of thousands? This is a key question you should have the answer to before you list your home for sale with a Realtor.
Recent News About Flood Insurance
Over the past year there have been some developments in the National Flood Insurance Program. In 2012 the president signed into law a bill that reauthorized the program, which helped to re – energize the real estate market in areas where flood insurance policies are required; as there had been various disruptions in the areas that required the federal insurances.
The bill also:
- Made flood insurance more available and affordable for those who needed the insurance
- Introduced some new provisions, such as a method for establishing responsibility between the flood and wind insurance providers when it was difficult to determine what precisely caused damage to a home
- Redrew the flood maps used to determine a home’s flood risk
- Established an independent appeals board for individuals and communities looking to challenge the maps
- Guaranteed that a homeowner who is successful in his appeal of the maps will be reimbursed for related costs
Homeowners should also be aware that in some areas the subsidies that helped people afford flood insurance are being phased out. The people primarily affected by the loss of the subsidies are those who live in older structures known as pre – FIRM structures because they were built before the first flood maps were drawn. Not all pre – FIRM properties will be affected. The majority of the changes will influence the insurance rates of those residences that are not used as primary residences, business properties, and properties that have experienced severe and repetitive loss due to flooding.
Flood insurance is a valuable asset for those who own homes or businesses. Even those who do not live in a high risk flood zone face the threat of flooding, and water damage can devastate a building. Learning about how flood risks affect the local area and discussing the matter with the real estate agent can help homeowners make wise decisions about flooding and help protect their families and assets.
Avery Garrett is a top Indianapolis Realtor serving the Indianapolis Metropolitan area from Coldwell Banker Kaiser. Avery is Zillow.com Premium 5 Star Agent and Top Contributor, and is a Member of the Metroplitan Indianapolis Board of Realtors. Contact Avery for a complimentary, no obligation, Market Analysis of your home at 317-721-2274, or SoldByAvery@gmail.com. See Avery's reviews and search for a home at www.SoldByAvery.net.
Avery is proud to help home sellers and home buyers in the following communities: Carmel, Fishers, Noblesville, Westfield, Cicero, Sheridan, Lebanon, Zionsville, Brownsburg, Avon, Danville, Plainfield, Mooresville, Camby, Greenwood, Bargersville, Martinsville, Franklin, Shelbyville, Southport, Beech Grove, New Palestine, Greenfield, Lawrence, Greensburg, Nashville and beyond.
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