With all of the damage that has just happened here in Vermont as a result of the flooding that was caused by Hurricane Irene, flood insurance is a timely topic. I have heard stories and read reports that here in Vermont and elsewhere on the East Coast, a great deal of the damage that was caused by the hurricane is not covered by flood insurance. In an effort to understand why that is, and how flood insurance works, I decided to do some research on the topic. Here’s what I found out.
According to the web site for the National Flood Insurance Program, the risk of flooding at any given location is based on a number of factors including topography, history, rainfall, and development. Flood hazard maps have been developed by people who have carefully studied flood risk. The maps are used to rate the risk of flooding at any given location, and they are the basis for the pricing of flood insurance. As with any type of insurance, the lower the flood risk for your property, the lower your flood insurance premium will be.
Flood insurance is not something that automatically comes with a homeowner’s insurance policy. You can only purchase it through an insurance agent, and it is important to understand what is covered by your policy and what is not covered. Some homes and businesses in high risk areas are required to have flood insurance if they have mortgages from federally regulated or insured lenders. For many homes and businesses, though, flood insurance is optional.
Part of the problem with flood insurance is that the National Flood Insurance Program has proven in the past to be unable to handle all of the monetary losses associated with some major disasters such as Hurricane Katrina. Hurricane Irene may overburden the program, and it is unclear whether Washington will be able to help because of all of its other financial woes. Another problem is that only about one in twenty households have flood insurance. In these times of having to cut expenses wherever they can, some homeowners are choosing to let their policies lapse and take the risk, especially if it is not very high. Of course, this is only a problem when the homes that are not covered actually get flooded. This is what has happened this week – homes that were not at high risk for flooding were damaged by floods of epic proportions. Now that you know the basics of flood insurance and that it is not covered by your regular policy, you can look into your flood risk and make an educated choice about whether or not to buy flood insurance.
Photo by kconnors on morguefile.com.