How to assess your need for flood insurance

"When people want to borrow the money to rebuild, the banks and the Small Business Administration are now requiring flood insurance on any of the houses down in that area to protect them against another flood," he says.

Throughout much of the Northeast and Midwest, the once-in-a-lifetime flooding of 2011, some of which resulted from slow-moving Hurricane Irene, has many homeowners rethinking their need for flood insurance.

"This year really highlighted the question: What is plan B if I don't have flood insurance?" says Michael Barry, spokesman for the Insurance Information Institute. "They've really gotten a quick primer on the financial recovery process."

Buying flood insurance through the National Flood Insurance Program, or NFIP, a government program administered by the Federal Emergency Management Agency, is mandatory for federally backed mortgage holders who live in a FEMA-designated Special Flood Hazard Area, or SFHA. But for those who own their home outright or reside in non-SFHAs, or NSFHAs, the decision can be a difficult one.

"The first thing that people need to understand is everybody lives in a flood zone," says Janet Scott-Buckley, office manager of Harrington Insurance Agency in North Andover, Mass. "The question is, how high is your risk?"

These steps will help you assess your need for flood coverage.

Step 1: Assess your home's flood risk

Just because you don't live in a high-risk zone doesn't mean you're safe from flooding.

According to FEMA, floods are the nation's No. 1 natural disaster and occur in all 50 states. One in 4 floods occurs in NSFHAs. NSFHA homeowners file more than 20 percent of all NFIP claims and receive one-third of federal disaster assistance for flooding.

Nor are you in the clear from flood damage if you own a condominium several stories above ground level.

"Just because you are high up doesn't mean you are not at risk," says Lynne McChristian, the Florida representative for the Insurance Information Institute. "If a flood destroys the pilings underneath and the building collapses, if your unit was above that, you have no recourse if you don't have flood insurance."

Step 2: Consider your worst-case scenario

Because most homeowners insurance policies specifically exclude flood damage, unless you have a NFIP policy, the total cost to repair or rebuild your home and replace damaged contents could fall to you.

However, if the flood that swamps your home is severe enough to be declared a federal disaster, you could receive a limited helping hand from Uncle Sam.

"In that case, you can either apply for a direct grant, which usually caps out at no more than $33,000, or you can apply, if eligible, for a low-interest (Small Business Administration) loan," says Barry.

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