NEW YORK (CNN/Money) -
As the nation comes to terms with the flood-stricken wake of Hurricane Katrina, CNN/Money answers questions about flood insurance, specifically, what it covers, where it's available, how much it costs and whether you need it -- and yes, you do.
Flood insurance fast facts:
What is it?
Flood insurance covers the rising of flood waters from the ground. A flood is defined by FEMA as "A general and temporary condition of partial or complete inundation of two or more acres of normally dry land area or of two or more properties (at least one of which is your property) from:
- Overflow of inland or tidal waters,
- Unusual and rapid accumulation or runoff of surface waters from any source, or
- A mudflow.
[The] collapse or subsidence of land along the shore of a lake or similar body of water as a result of erosion or undermining caused by waves or currents of water exceeding anticipated cyclical levels that result in a flood."
Flood insurance does not cover broken pipes, or main breaks that may damage your home, unless "there is a general condition of flooding in the area and the flood is the proximate cause of the sewer or drain backup, sump pump discharge or overflow, or seepage of water." (FEMA) Damage to your home as a result of a flood is not covered by your homeowners insurance.
Flood insurance isn't available everywhere. Its only available in communities where "the appropriate public body has adopted adequate floodplain management regulations for its flood-prone areas." Community participation is purely voluntary.
How did it evolve?
The separation of flood insurance and homeowners insurance evolved after a number of waterfront communities were hit with major floods and were all insured by the same companies. The resulting claims caused catastrophic losses for the insurance industry. (according to the Independent Insurance Agents and Brokers of America (IIABA) a national alliance of more than 300,000 business owners and employees who offer all kinds of insurance and financial services)
The Federal Government created the National Flood Insurance Program (NFIP) in 1968 to "reduce future flood damage through community floodplain management ordinances, and provide protection for property owners against potential losses through an insurance mechanism that requires a premium to be paid for the protection" (from FEMA Web site). It is administered by FEMA.
What does it cost?
Flood Insurance can cost anywhere from $233-$3000 per year, depending on where you live and what level of coverage you get, according to the IIABA. The max that can be insured is $250,000. This is the maximum value you can get through the Federal program to rebuild the structure of your home in like kind and quality. (Private companies cover above and beyond that level.)
The contents damaged by a flood are covered for up to $100,000. Insuring contents is extra.
Renters can get flood insurance that covers your belongings up to $100,000.
Who needs it?
According to FEMA, everyone. Some people think that they don't need flood insurance because they think the Federal Government will take care of their financial needs if a major flood occurs. This is not true. Federal disaster assistance is only available if the Federal government declares a disaster area. Even then, it is often given in the form of a loan, with interest.
You cannot buy Flood insurance last minute. The policy generally has to be in place for 30 days to take effect. Flood insurance terms last one year.
Are there certain buildings that can't be insured?
Yes, Flood insurance is not available for buildings that FEMA determines have been declared by a State or local zoning authority or other appropriate authority to be in violation of State or local floodplain management regulations or ordinances. No new policies can be written to cover such buildings; nor can an existing policy be renewed.
New construction or substantially improved structures located within a designated Coastal Barrier Resources System (CBRS) area are not eligible for flood insurance, but existing structures that predate CBRS designation are eligible for flood insurance coverage. These areas are located in nearly 400 communities on the Atlantic and Gulf coasts and along the Great Lakes shores, and are delineated on the communities' flood maps.
A few facts
- Every year, flooding causes more than $2 billion of property damage in the U.S.
- In a high risk area, your home has a 26 percent chance of being damaged by a flood during the course of a 30-year mortgage, compared to a 9 percent chance of fire.
- Roughly 25 percent of all claims paid by the NFIP are for policies in low- to moderate-risk communities.
- The average annual U.S. flood losses in the past 10 years ('94-'04) was $867 million per year.
- The NFIP awarded over $601 million in flood claims in 2003.
- Since 1969, the NFIP has paid $12.7 billion for flood insurance claims and related costs.
- About 4.5 million people currently hold flood insurance policies in more than 20,000 communities across the U.S.
- Floods and flash floods happen in all 50 states.
- Everyone lives in a flood zone.
- All claims and expenses of the NFIP program are funded by insurance premiums, not tax dollars
- A car can easily be carried away by just two feet of floodwater.
- Hurricanes, winter storms and snow melt are common (but often overlooked) causes of flooding. New land development can increase flood risk, especially if the construction changes natural runoff paths.
For more information, visit the Frequently Asked Questions about Flood Zones)
Click here for 5 Tips on what you need to know about insurance after a disaster.