|Buy flood insurance before the water
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.
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
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.