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National Flood Insurance Program – Who? What? Why?
Private insurers are not willing to include flooding and ground water damage in homeowner’s insurance. They have good reasons for this stance.
Among them, water can really cause grave destruction to property. And if a flood does occur, it would probably affect a whole stretch of houses or even the whole neighborhood.
Those are some serious claims we are talking about. And because the weather is unpredictable, it can be hard for the mathematician to work out probabilities of risks.
In view of the reluctance of private sector to insure against flood, the government has got involved to ensure that homeowners are properly protected.
It will be a societal nightmare if hundreds or thousands of people lose their homes and possibly everything.
The National Flood Insurance Program (NFIP) was conceptualized to serve this important need. Home owners can either get them directly from relevant authorities or from insurance companies participating in it.
The requirement to be eligible for it is to live in a community that participates in NFIP. Yes, there are communities that are not.
And to actually give you a choice, there are 2 types of federal flood programs to choose from.
The first is the emergency program
This is for homes in communities that have yet to be accepted in NFIP, but have already made their applications for participation.
Imagine the public backlash if a hurricane arrives while application is still in process leaving households uncovered. This emergency program will enable home owners to at least get some form of coverage.
But as you can expect, because the community in question has yet to be officially a participant, policy holders will not have the same thing as a NFIP participant.
You can expect higher premiums and less coverage limits. So review your policy as soon as NFIP is approved for your community to revise your limits.
The second type is the regular program for community participants
Coverage limits here are $250,000 for dwellings and $100,000 for contents.
Avoid making the mistake of confusing it with a typical homeowner’s policy. When you sign up for NFIP, here are some points to take note of.
- A 30-day waiting period is enforced before the policy comes into effect. Because insurance is a pooling business, this waiting period prevents people from abusing the system. For example, only buying when news breakout that a hurricane could land in a few days.
- A deductible is applicable to losses for contents and building. Deductible increases if you are covering both.
- Non-replacement. Claims are on a depreciated basis. You will only get a full replacement if your coverage limit is lower than the maximum limit available for the policy, 80% of the limit, or you simply got a coverage higher than the replacement cost.
- You have the freedom to choose on buying coverage for building only, contents only or both. Sometimes this can be a logical choice. Rental property owners may just want to insure the building while tenants will just want to insure the contents. A home owner will probably go for both, as much as possible.
- Coverage limits are bundled up with a ceiling of $250,000 for building, and $100,000 for contents.
- Take note of your basement. NFIP only covers basement structures and equipment. It excludes walls, floors, ceilings, and your belongings. And whether or not what you have is indeed a basement depends on definition and interpretation. The definition of a basement in this sense is having all 4 sides below grade.
- If you have one of those walkout basements where 1 side is on grade level, you can relax. Because it is not a true basement by definition, your policy will cover everything. Split level basements where half is below ground and the other half above, are excluded as they are basements by definition as the 4 sides are all below grade.
How to get NFIP
If you prefer to do it yourself, just get online and search for it. You will be able to land on the site without much search effort.
You will then also be able to see the risk classification for the zone you are living in.
The riskiness of zones are classified into 3 categories of low, moderate to high. But don’t let this fool you. If you want to get insured for flood, do it. It doesn’t matter what classification it falls under.
If you prefer to relax and get your agent to do his job, ask him if he is licensed to sell flood insurance.
As not all insurers are participants and not all agents are certified by the Federal Emergency Management Agency (FEMA) to sell, there is no guarantee that your agent will be able to help you. But again, you should be able to easily locate certified agents on the internet or find insurers who are participants in it.
Flooding is a big concern for home owners as they have serious consequences and actually occur more frequently than the general public is aware of.
If you are intent on getting it, go for it even when you learn about it’s limitations and drawbacks. You have very little alternative options.
If you are sitting on the fence, ignore it by all means. But when a flood really occurs and intrudes your home, you would surely realize that you have made a bad choice for not buying.