Flood insurance: myths and misconceptions – 2021 – Talkin go money
Homebuyers are usually required to purchase homeowners insurance if they intend to mortgage their property. However, standard homeowners insurance does not cover flooding, so homeowners at risk must purchase flood insurance. Buyers should do their homework on flood insurance, as there are some myths and misconceptions about this product.
Consumers need to buy private flood insurance
A common misconception about flood insurance is that consumers must purchase coverage from a private insurance carrier. In fact, a federally regulated program called the National Flood Insurance Program (NFIP) provides the most common flood insurance policies. A potential policyholder can purchase two types of coverage – one that insures the value of a home up to $250,000 and another that covers personal property up to $100,000. Buyers who need more than $250,000 for their homes must purchase flood insurance through a private carrier. Some private insurance carriers offer a purely private policy, but these policies cost more than NFIP policies and often only insure properties valued at more than $1 million. In addition, many mortgage lenders will not accept private flood insurance policies because they carry greater risks than the federal program.
Consumers pay a lump sum
Another myth about the cost of flood insurance is that all buyers pay the same flat rate. Although the average one-year premium for flood insurance is $600, buyers should consult an insurance agent for an actual quote. Factors such as the amount of coverage, the deductible, the flood risk of the area, and the condition and age of the building all affect the cost of coverage.
Flood insurance covers all damages
What does flood insurance cover? One myth about flood insurance is that a flood policy covers all types of damage. Buyers of flood insurance should understand what exactly flood insurance covers in the event of an incident. An NFIP property policy covers the basics of home, electrical, plumbing, air conditioning, water heaters, furnaces, kitchen appliances, carpeting, permanent wallboard and paneling, permanent cabinets and bookcases, blinds, detached garages (limited to 10.) % of home policy) and removal of debris. An NFIP personal property policy covers clothing, furniture, electronic equipment, draperies, window air conditioners, portable microwaves and dishwashers, carpeting not covered by the home policy, washers, dryers, freezers, frozen foods, and valuables up to $2,500. such as furs or jewelry.
NFIP policies do not include precious metals, stock certificates, bearer bonds and cash.They also do not cover trees, plants, fountains, septic systems, sidewalks, decks, patios, fences, hot tubs, swimming pools, boathouses, retaining walls, storm shelters, temporary housing, loss of income, automobiles or mold damage.
Only residents in a flood zone need coverage
Another misconception about flood insurance is that only people in high-risk flood zones need coverage. In fact, residents outside of flood zones receive one-third of catastrophic flood assistance and over 20% of flood insurance claims. Flooding is the most common type of natural disaster in the country, and all 50 states are exposed to risks. Buyers in high-risk areas known as special flood zones must purchase flood insurance to qualify for a mortgage. Buyers outside these areas, however, can purchase a policy. Homebuyers should consult the Federal Emergency Management Agency (FEMA) website to find out if their property is located in an area that participates in the NFIP program. Because flooding affects every state, almost all areas should be considered for coverage. Buyers outside of special hazard flood zones need to assess their ability to withstand the financial consequences of flooding. One resource they can consult is the FloodSmart website. Homeowners can enter their address and receive estimates of their risk and premiums, as well as a list of agents who service their area.