Most homebuyers know that to close on a mortgage, banks or lending institutions require homeowner’s insurance. However, only some realize that flood insurance is also necessary. While many assume that only homes in high-risk flood zones need a policy, it’s important to remember that flood damage can happen anywhere. Moreover, approximately 25% of all flood claims are made in areas deemed moderate to low risk.
The Risk of Flooding in Your Area
The decision to purchase South Carolina flood insurance – a separate policy outside your homeowners or renters’ insurance – is best made after carefully evaluating the risks, costs, and benefits. A flood policy covers building coverage (for your home and the structure’s foundation) and contents coverage or the value of your personal belongings.
A licensed insurance agent can help you determine how much building coverage you need, while a home inventory is helpful when assessing your contents’ value. According to FEMA, flooding is a common and costly type of natural disaster, causing $4.6 billion in damages on average per event. It also doesn’t require living in a coastal area or flood zone to be at risk; floods can occur even in areas far inland.
If you live in a flood zone, especially those designated as Zones A and V under the National Flood Insurance Program (NFIP), you may be required to obtain flood insurance from your mortgage lender. However, an NFIP Preferred Risk Policy can be available at a reduced rate to residents in moderate- to low-risk zones.
The Cost of the Policy
Whether or not flood insurance makes financial sense for you depends on the value of your home and the items in it. A home inventory is an excellent way to determine the value of your belongings. Building property coverage reimburses you for repairing your home’s structure, and personal property coverage covers possessions like furniture and clothing.
A deductible can have a significant impact on your monthly premium. Choosing a higher deductible means you’ll have to pay more out of pocket if you file a claim, but a lower deductible may reduce your premium. The cost of a flood policy may also depend on its location and the amount of coverage you choose.
Using FEMA’s Flood Map Service Center, you can determine if your home is in a high-risk area. Suppose your home is in a high-risk zone. In that case, it’s worth exploring flood mitigation options, such as elevating utilities, elevating the property, filling in basements, installing flood openings, and providing an elevation certificate.
The Coverage Limits
In many cases, flood insurance is a requirement for mortgage holders in areas at high risk of flooding. The NFIP policy covers your home’s building and contents but has limits that you should consider carefully. For instance, the NFIP only offers $250,000 in dwelling coverage and $100,000 for contents coverage for single-family homes.
This could leave you underinsured if your house value is higher than this. The NFIP also only includes a maximum of $3,500 in extra living expenses, which is not enough to cover the cost of staying elsewhere if a flood severely damages your house. You can obtain additional living expense coverage through private insurers such as Neptune and Chubb, but you’ll likely have to pay more for this option.
As a result of the Biggert-Waters Act, some private insurers are starting to offer excess flood policies that go beyond what the NFIP offers. However, these policies are more expensive and only available for more than $1 million properties. They also require a waiting period before they become effective.
The Policy’s Exclusions
Unlike a standard homeowners policy, flood insurance excludes many items. For example, it usually doesn’t cover lawns or trees and does not include coverage for fences and sheds. It excludes any money, deeds, or other papers that water would ruin. Generally, this type of insurance only covers sewer backups if caused by rising floodwaters.
Some people must buy flood insurance, especially those living in high-risk areas with mortgages from federally regulated lenders. However, it is essential to consider all your options before deciding whether this type of insurance is right for you. The NFIP offers building and contents coverage, with limits up to $250,000 for buildings and $100,000 for contents.
Private insurers that offer flood policies often have higher limits and may also offer additional coverages like loss of rental income or replacement cost valuation on contents. It is essential to consult with an insurance agent for more information and to discuss your individual needs. Depending on your circumstances, a private insurance company is the best option.
The Policy’s Reputation
The NFIP’s policy covers the structure of a home and its contents from flood damage. The NFIP policy is available for homeowners, renters, and commercial property owners. This coverage is separate from standard homeowners insurance policies and provides more protection than other types of property damage.
Typically, the NFIP policy offers coverage up to $250,000 for the structure of your home and $100,000 for its contents. In addition to covering the cost of repairing or replacing your belongings, this insurance also offers additional living expenses coverage. This can help pay for things like meals, hotels, and dry cleaning while your home is being repaired after a flood.
Most mortgage lenders require anyone purchasing a home in a designated flood zone to purchase this type of coverage. In addition, the federal government requires that anyone who wants to borrow money against their property buy a flood insurance policy. However, many private insurers now offer this type of insurance, often offering better coverage than the NFIP. For example, some private insurers offer up to $2 million for the building and personal property coverage.