6 Things home buyers must know about flood insurance

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Flooding is one the most devastating natural disasters of the year. This makes flood insurance essential for homeowners in the United States. Flood zones can be found in every part of the country, from beachfront condos to landlocked subdivisions. According to an environmental research letter study, nearly 41 million Americans live within flood zones.

Many people living in flood-prone areas will be more aware of the damage flooding can cause after a record breaking hurricane season ended 2020.

Last year was a wake-up call for disaster preparedness. The 2020 hurricane season saw 13 storms, 6 of them being major hurricanes. Congress reauthorized the National Flood Insurance Program (NFIP) until September 2021. The average flood insurance claim is $3.5B per year. After Hurricane Irma 2017, the NFIP paid $1.05B in claims. Floods can be caused by rain, storms, or even rapid snowmelt, but it is impossible to predict exactly how they will occur.

Flood insurance might be necessary

Flood insurance is required for those who live in flood-prone areas, as indicated by the letters A and V on a flood insurance map or FIRM. Flood coverage is not included in standard homeowners insurance.

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Most homeowners insurance covers water damage due to a burst pipe but not flooding from heavy rain or rising rivers.

Elevation certificates are required for homes located in high-risk areas. An elevation certificate, or EC, shows how high flood waters could reach in case of a major storm and what your home’s elevation is. This allows insurance companies to estimate the risk involved and may affect your premium.

According to Louise Rocco of Exit Bayshore Realty, sellers usually pay for the EC. This involves a surveyor visiting the property to measure elevation. However, if the seller has had an EC done before, this might be sufficient.

Although the NFIP may be able to help with flood insurance costs, it is not guaranteed to last.

When the NFIP expired in July 2018, flood insurance was a prominent issue. Flood insurance is a federal program that was established in 1968 to offset homeowners’ insurance costs. The president signed legislation in the last minute to extend the NFIP by four months. The NFIP has been subject to numerous short-term reauthorizations.

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For those living in high-risk areas, the coverage can be costly. This is why homeowners may find the NFIP valuable.

Fremont, Nebraska is a place where the ground is flat. Many neighborhoods are vulnerable to flooding due to extremely slow stormwater runoff. Jennifer Bixby, president at Don Peterson & Associates Fremont, said residents depend on the NFIP.

Flood insurance rates are kept affordable by the federal subsidy program. Fremont residents pay $1 million in flood insurance premiums. These premiums would rise if the flood insurance program was eliminated. This would have a negative impact on people’s quality life,” Bixby says.

Some people find the cost of insurance more expensive than necessary.

“Many buyers aren’t willing to spend extra on insurance. One woman I know was paying $5,000 per annum for flood insurance. Bixby says that you need to ensure you have the financial means to afford it, and are willing to pay it.”

The NFIP is at the moment authorized by most of 2021.

Flood insurance is usually cheaper outside flood zones

Flood insurance is something you might still want to look into, even if it’s not required by your lender. Insurance could save the lives of homeowners who live in high-risk areas.

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When you consider the possibility of loss, flood insurance can be a great deal. Chris Orrock, public information officer at the California Department of Water Resources, says that one foot of water can cause $72,000 worth of damage to an average home.

More than 20% of all NFIP claim were filed by residents living outside these high-risk areas. These people received one-third federal disaster assistance for flooding.

Insurance is more affordable for those who are not located in flood-prone areas.
Preferred Risk Policy (NFIP) offers low-cost policies to homes with low or moderate flood risk. These zones are identified by a FIRM’s B, C, or X zone.

For $250,000 of coverage on a house with basement, $386 per annum is the cost. Orrock says that this could be your best investment of the year, at a little less than $1 per day.

According to the NFIP flood insurance rates are based upon several factors:

  • Year of building construction
  • Building occupancy
  • There are many floors
  • Its location
  • Flood zone type
  • FEMA flood map: Location of the lowest floor relative to the base flood elevation
  • The amount and the deductible for contents and building coverage
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Before you buy, research the flood history of your area.

Experts agree that flooding can occur when it rains. According to FEMA data, flooding has affected 99% of the U.S. counties. Even Death Valley, one of America’s most dry areas, has experienced dangerous flash floods.

It is crucial to know how much risk you are taking before buying a home located in a flood zone.

“One reason people buy Florida property is to have waterfront property. This waterfront property is always going be in a flood area. Even things they claim aren’t in flood zones could still be. Rocco says that the best thing to do is to investigate the property and ask many questions.”

Information about flood zones is often included in the MLS listing. Flooding or drainage issues must be reported.

Bixby states that sellers are required to disclose flood information, including whether the property has been flooded in the past.

Insurance premiums will be higher for those who live in high-risk areas. This is something you should consider when house hunting. It is a good idea to talk with your lender about the possible contingencies of buying in a flood area.

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Rocco says that some lenders may require you to buy flood insurance for a year upfront.

Flood zone risks are not guaranteed

Low-risk areas are C and X. Sometimes, X zones will appear shaded. This indicates that an obstacle, such as a levy, has been constructed to lower flood risk. These structures do not guarantee that flooding will never occur.

Orrock says that even if the levy meets FEMA standards, there is a 25% chance that your mortgage will be canceled if it’s protected by it.

A and V = Very high risk

D = Undetermined Risk

Moderate flood danger = B and X (shaded).

C and X (unshaded), = Minimal flood danger

Learn how to flood-proof your house

You can make flood-damage reductions to a property if you are in love with it. These modifications could be large structural changes or minor tweaks.

Discuss with your agent the possibility of negotiating the cost of flood-mitigating updates.

To prevent water from entering the building, you can raise it. It is possible to raise the building so that it is higher than flood level,” Nick Ratliff, an associate broker at Better Homes and Gardens Real Estate Cypress, Lexington, Kentucky. These are topics you should discuss with your agent if you live in a flood area.

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Small changes can make a huge difference depending on the risk level of your prospective home. It is a good rule of thumb to ensure that water flows away from your home and not gathers in pools.

Make sure that downspouts face away from the structure, for example. Gutter runoff shouldn’t collect near your house. This could lead to basement leaks. This should be addressed with the seller or your agent.

“Check the gutters and pipes. Check that they are clean. Placing air conditioner units on concrete blocks above flood level is a good idea. This will protect your home and appliances,” says Rocco.

Questions frequently asked

What is a flood zone?

Flood zones are a method of categorizing areas based on the likelihood of flooding. Many factors play into the flooding risk of a particular area, such as terrain, waterways, and local rainfall. FEMA created this ranking system based on the likelihood that a particular area will flood in any given year. Sites with a 1% flood risk are called Special Flood Hazard Areas (SFHAs). Higher flood risk areas are more likely to need flood insurance. Additionally, flood insurance rates can be more expensive. Flood insurance tends to be more expensive in areas where flood damage insurance claims occur more frequently. It is always prudent to check if you are buying a home in a flood zone.

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Flood insurance is required?

Flood insurance may be required under certain circumstances. It is most commonly required by mortgage lenders. The lending company might require flood insurance to be purchased by borrowers who take out mortgages to purchase a home at high risk of flooding. You can speak to the homeowner’s insurer if you require flood insurance. To determine how much flood insurance your property might require, refer to the Bankrate article ” How Much Flood Insurance Do You Need for a Mortgage?”.

Flood insurance is worth the cost?

It can be difficult to determine whether flood insurance is right for you. Flood insurance is often required in areas that are subject to frequent flooding. However, each property is unique. Flood insurance is required for many structures when mortgages are involved. This question can be answered by determining the flood risk to your property and comparing it to the maximum damage flooding could cause. Next, calculate how much it would cost for flood insurance to cover this amount. It may be worth it if the protection provided is as good or better than the insurance.

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Is flood insurance included in my homeowners policy?

Flood insurance is not included in a standard home insurance policy. Although it may be offered by some insurers as an option, it is always sold through National Flood Insurance Program. To learn more about flood insurance companies, contact the NFIP. Private companies also offer flood insurance policies.