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Flood insurance without the drama

By Jay MacDonald · Bankrate.com
Tuesday, September 28, 2010
Posted: 7 am ET

The eye of Hurricane Katrina makes landfall in the bayou near Buras, La., on Aug. 29, 2005. (Photo courtesy NOAA)

It's late September here in Florida and the category storms heading our way from Africa are lined up in the Atlantic like seniors at the Early Bird Special, eyeing our tantalizing shores. Florida, you may have heard, is desperately trying to stabilize its housing market, which has been swamped, so to speak, with foreclosures.  The BP oil spill didn't help. We don't relish another lapse in the National Flood Insurance Program, or NFIP.

But relief is in sight, at least where that gaping hole in our homeowners insurance is concerned: President Barack Obama is expected to sign a bill this week that extends NFIP through Sept. 30, 2011.

When that happens, Realtors, mortgage lenders, home sellers and homebuyers in flood zones can breathe a sigh of relief.

Unlike auto insurance, which covers damage to submerged vehicles, a standard homeowners insurance policy does not cover flood damage, nor does renters insurance or commercial property insurance.

Congress originally created NFIP in 1968 -- the same year Otis Redding topped the charts with "(Sittin' On) The Dock of the Bay," though not necessarily because of it -- to patch the hole in the homeowners insurance boat. Congress used to routinely extend authorization of the program for years at a time.

Then came Hurricane Katrina, which exposed serious flaws in the program. Since then, Congress has extended NFIP for mere months at a time, occasionally allowing it to lapse, in the hopes of building a more sustainable version 2.0.

When NFIP takes a time out, homeowners cannot renew their flood policies and homebuyers cannot purchase same. This, in turn, delays the closing of home sales in flood zones. During such lapses, home insurance associations and Realtor groups accuse Congress of sittin’ on the dock of the bay, wastin’ time.

Without that left-handed presidential scrawl, NFIP is set to expire yet again this Thursday, Sept. 30. That could prove calamitous given the Early Bird storm lineup.

Don't get me wrong, it will be great to have NFIP authorized for another whole year.

But why does it have to expire yet again right at the height of hurricane season next year?

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