One of the most common and costly natural disasters, floods cause billions of dollars in damage each year in America. But because standard homeowners insurance doesn’t cover flooding, residents are left to fend for themselves. The only safeguard millions of them have against rising waters is coverage from the National Flood Insurance Program (NFIP).
What Is It?
The NFIP was created by Congress in 1968 to give property owners protection against financial loss from flooding. As long as they reside in a community that participates in the program, homeowners, renters, and business owners can obtain affordable insurance coverage through the NFIP. Because they are located in flood-prone areas, participating communities are expected to comply with FEMA requirements intended to reduce the risk of flooding. At last count, there were nearly 5 million NFIP policies in more than 20,000 communities across America.
Who Needs It?
All of the communities that are eligible for insurance coverage are located in flood zones. According to FEMA, high-risk areas have as much as a one-in-four chance of experiencing a serious flood during a 30-year mortgage. As such, property owners in these communities must purchase NFIP coverage by federal law. Because their risk of flood damage is considerable, they typically pay higher premiums than those in less vulnerable areas.
About 20 percent of NFIP claims come from property owners in moderate-to-low risk areas. Although not federally required to purchase flood insurance, it is strongly recommended for home and business owners. Because the risk of a flood is quite low in many of these areas, coverage can often be obtained for under $100 a year!
What It Covers
Flood insurance through the NFIP provides both building and contents coverage.
Building insurance includes:
– The structure itself (whether home or business)
– Electrical and plumbing systems
– HVAC equipment
– Refrigerators, stoves, and built-in appliances
– Permanent carpeting
Contents coverage includes:
– Curtains
– Portable appliances
– Clothing and other personal items
– Electronics
– Furniture
As a general rule, policy holders with damaged property are reimbursed through one of two methods: Actual Cash Value (ACV) or Replacement Cost Value (RCV). Depending on the policy, damage to the structure is generally insured to within 80 percent of its RCV.
Flood insurance through the NFIP is a godsend for millions of Americans living and working in flood-prone areas. It allows them to obtain comprehensive coverage for their home or business at an affordable price.
Photo Credit: DVIDSHUB of Flickr