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Buy flood insurance before the water rises
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Reading a flood insurance policy isn't easy, but it does spell out reasonably well what's covered under what circumstances, so if you're on the fence about what to buy, download the residential policy at FEMA's Web site -- click on "Dwelling Policy Form." While you might still be confused when you get done, you'll be better equipped to ask an insurance agent good questions.

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Flood insurance was established because insurers were getting out of the business when the losses were too big. But with the federal government handling the big losses, some insurers have gone back to selling what amounts to supplemental flood insurance for people who can afford to pay handsomely to cover expensive homes and other belongings. If you fall into that category, Chubb Group, Firemen's Fund and AIG are among the companies offering the policies.

Other factors to consider
Flood insurance pays to the policy limit. If your home is insured for $150,000 and is flooded, $150,000 is the most the policy will pay -- no matter how much it costs to put your devastated home back together.

Flood policy buyers can pick a different deductible for structure than they choose for contents coverage -- generally somewhere between $250 and $1,000. Your mortgage company may place limits on how high your deductible can be. Otherwise, a higher deductible is preferable to keep the cost of the premium down.

Flood insurance can be obtained as either a replacement cost or actual cash-value policy; but personal property and some building items, such as carpeting, are always adjusted on an actual cash-value basis. That is, if the carpet is old, you'll get a fraction of replacement cost.

Most National Flood Insurance Program policies include increased cost of compliance, or ICC, coverage, which applies when flood damage is severe. This coverage allows up to $30,000 to cover the cost of elevating, demolishing or relocating a property if the local community declares it is "substantially damaged" or "repetitively damaged" by a flood.

Such a payment will require that the homeowner bring the house up to current flood-damage-resistant design and construction standards, and the award amount, coupled with other claims, cannot exceed the $250,000 allowed for maximum property coverage. This policy is a hot-button issue in many coastal communities. The legislation currently under consideration would raise that limit by $100,000.

If water comes up through sewers or the sump pump, the adjuster may call that "sewer backup" and deny flood insurance coverage, so it's always wise to elect sewer backup coverage on your homeowners policy. This, in combination with flood insurance, will offer maximum coverage.

Another little twist worth noting is that if yours is the only house in the neighborhood to be flooded, the federal government can deny that a flood happened, even though the water in your basement is real.

Next: "The other way to get out of carrying flood insurance is to ..."
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