What you need to know about flood insurance

Louisiana flood victims on boat | Joe Raedle/Getty Images

Flood water can and will find its way into furniture, flooring, walls, lighting, electronics, appliances and irreplaceable keepsakes and photos.

All it takes is just an inch of flood water throughout a 2,000-square-foot home, and you'll be looking at almost $21,000 in damage, according to the National Flood Insurance Program.

When that destruction is multiplied across an entire community, it's easy to see why floods are so devastating -- and why flood insurance is so important.

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Home insurance offers little help

Victims of Superstorm Sandy and other disasters of recent years learned too late that their homeowners or renters insurance policies offered no protection against flooding. That's the most misunderstood aspect of flood coverage, says Loretta Worters, vice president of the Insurance Information Institute, an industry trade group.

The National Flood Insurance Program, or NFIP, is the primary source of flood insurance for homeowners and renters. The program is administered by FEMA, the Federal Emergency Management Agency. The insurance is so vital, FEMA notes, because flooding is the most common and costly natural disaster in the U.S.

With flooding, unlike other natural hazards, the very first way to protect yourself is to buy insurance, says Leslie Chapman-Henderson, president and CEO of the Federal Alliance for Safe Homes, or FLASH.

The insurance is so affordable compared with the cost of flood damage that it makes no sense not to have it, she says.

The big questions

Here are answers to 4 key questions about flood insurance. For specifics about your community and home, talk to the agent who handles your homeowners or renters policy.

1. Is flood insurance required?

Unless you own your home free and clear of loans or live in an apartment or condo on an upstairs floor, expect that you'll have to buy flood coverage.

Lenders will require it if you live in an area considered at high risk for flooding and your mortgage is federally backed, such as by the Federal Housing Administration, or FHA.

In fact, just expect any lender to want it, says Worters.

FEMA says flooding affects all states, and everyone is at risk because even very small streams and creeks can flood. Your insurance agent and lender will know whether your home is in a high-risk zone.

2. Where do you get it?

FEMA allows private insurers to write and administer policies for the National Flood Insurance Program. Your homeowners or renters insurance agent should be able to write flood coverage for you.

Coverage is available in about 20,000 participating communities. Discounts of up to 45% are available in communities where local officials enforce certain requirements that can reduce flood damage.

If your community doesn't take part in the national program, you'll likely be able to get flood insurance from private carriers, says Chris Hackett, senior director of personal lines policy at the Property Casualty Insurers Association of America.

3. How does flood insurance work?

  • Time lag: You can't procrastinate because coverage isn't effective until 30 days after a flood insurance policy is issued. So don't wait until the storm warnings are posted.
  • Coverage limits: Flood coverage for your home itself is capped at $250,000, while the contents can be insured only up to $100,000. You may be able to get flood insurance beyond those limits through specialty carriers, says Worters. The building coverage and contents coverage are purchased separately; your lender may require a certain amount of coverage.
  • What you get: The policy pays either the value of your lost property or the cost of replacing it, up to the coverage limit.
  • Deductibles: The higher the deductible, the lower the premium -- similar to home and car insurance. You'll pick different deductibles for contents and building coverage. Your lender may require a certain deductible amount.
  • What's covered: Flood policies insure against physical damage to your home or belongings directly caused by flooding. Sometimes, that's not quite as straightforward as it sounds. For example, if a flood causes a sewer backup that causes damage, it would be covered. If something else causes the backup, it's not covered.
  • What's never covered: Flood insurance won't reimburse you for: temporary living expenses while your home is being repaired; lost cash or stock certificates; a ruined car (which is a matter for your car insurance); damage from moisture or mold that you could have prevented; financial loss from business interruption; and anything on your property beyond the walls of your home -- such as plants, decks and hot tubs.

4. How much will coverage cost?

Your flood policy premium will be determined by your home's design, age, location, contents and the amount of coverage you decide to buy.

The average annual flood insurance premium cost about $700 in 2014, according to the most current data on the website of the National Flood Insurance Program.

However, reforms enacted by Congress in recent years allow for annual premium increases of up to 18%, to help pull the program out of a deep debt caused by payouts resulting from Sandy in 2012 and Hurricane Katrina in 2005.

Your agent will be able to give you an exact cost. For a general idea, you can plug your street address into the flood risk profile on the National Flood Insurance Program's website.

So the site tells you, for example, that the average flood insurance premium for addresses in moderate- to low-risk areas in Florida is $372, while a high-risk property in Louisiana would cost $688 to insure.

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