Bailing Out Made Easy

When the residents of flood-ravaged Omaha sorted the soggy remains, many homeowners discovered that one critical item was missing -- flood insurance. Without this valuable protection, many people found it very difficult and expensive to get their feet back on dry land, because the city refused to accept liability for the sewage that flowed through the area's homes after the flooding had subsided and private insurance companies denied most homeowners' claims. Even the state of Nebraska's declaration of the city as a disaster area offered little tangible assistance to the homeowners affected. If your city were to suffer the same fate as Omaha, would you be protected?

Like most homeowners and renters, you may believe that you do not need flood insurance because of the common misconception that homeowner's policies provide that protection. Alternatively, some people expect to rely on governmental assistance if their houses are damaged by floodwaters. The truth is that homeowner's insurance does not cover flood damage and federal aid provides only a fraction of the money needed to repair and rebuild.

Another common misconception is that only people living in coastal communities need flood insurance; however, a quick-rising creek or a storm-swollen river could easily flood its banks. Surprisingly, nearly one out of three flood losses occurs in areas identified as having only minimal risk of flood. In fact, the risk of your suffering a flood loss is 27 times higher than the likelihood of your experiencing a fire loss. Floods can also accompany many weather events, including heavy rains, melting snow and hurricanes. In some areas, it is real estate development, combined with changing weather patterns, that has strained the land's ability to absorb water, thus leading to more runoff and higher risk of flood. What can homeowners do to shift the risk of personal loss and devastation from flooding?

Short of moving to higher ground, the answer is flood insurance -- available to all renters and owners of insurable property (building or its contents), as well as to builders of buildings in the course of construction, when the property is located in a community participating in the National Flood Insurance Program (NFIP). Almost all communities in the U.S. with serious flooding potential have joined the NFIP. A quick telephone call to 1-800-427-4661 will tell you whether your community participates in the program.

If your property is in a participating community, almost every type of walled and roofed building that is principally above ground and not entirely over water may be insured. Contents of these structures may also be insured, but separately. Buildings entirely over water or principally below ground, gas and liquid storage tanks, animals, birds, motor vehicles, open equipment, shrubbery and land are not insurable.

After a community joins the NFIP, a property owner or renter may purchase a policy from any licensed insurance agent who sells flood insurance. Sometimes, it is the mortgage lender that is making, renewing, increasing or extending a loan who informs the builder or buyer that the building is in a Special Flood Hazard Area (SFHA) and that flood insurance must be purchased as required by the Flood Disaster Protection Act of 1973. For virtually every mortgage transaction involving a structure, the lender reviews the current NFIP maps (called Flood Insurance Rate Maps) for the community in which the property is located to determine the propertys relative location to the published SFHA. If the lender determines that flood insurance is necessary, the lender will notify the borrower.

The term of the policy is one year and the premium is usually paid in full at the beginning of the term. There is normally a 30-day waiting period before flood insurance goes into effect, unless the initial purchase is required by a lender (no waiting period) or if the initial purchase of flood insurance is made during the 13-month waiting period following a revision to a Flood Insurance Rate Map (1-day waiting period).

Unlike some other types of insurance, all policies expire at 12:01 A.M. on the last day of the effective term. NFIP rules allow for "renewal" of expiring policies without the need for a new application. Coverage remains in force for 30 days after the expiration of the policy. Claims for those losses that occur in the period will be honored, provided that the full renewal premium is received by the end of the 30-day period.

Visit http://www.TheMoneyExpert.com for expert assistance in making sure your insurance is in order.

-Ryan Novak is Vice-President of NIA Property/Casualty Insurance Clearinghouse, a recommended expert alliance of http://www.TheMoneyExpert.com

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