Need for Flood Insurance Hits Home

Flood insurance for homeowners covers up to $250,000 for structural damage. (Don't panic if your house is worth more than that figure. It's $250,000 for rebuilding the house, not buying the land it sits on.) There's also $100,000 to cover the contents inside as well as damaged personal items. The problem with flood damage, as seen in the Katrina disaster, is that it can last for months or years due to toxic mold and mildew growth that prevents structures from being lived or worked in again. This is why even the partial flooding of a basement can be prohibitively expensive to fix.

The cost of insurance can vary depending on your risk assessment. If you live in an area that has been hit hard by flooding in the recent past, you may be charged a premium of as much as $4,000 a year. A low-risk resident can expect to pay around $400.

While premiums can be steep, it pays to remember how disaster cleanups are typically handled. If your area is hit by a devastating flood and the president declares it a disaster area, you're usually eligible for a low-interest government loan and possibly a small grant to cover your damages. A $100,000 disaster loan can require a payment of around $500 a month over 30 years.

If your home is in a high-risk area and you have a federally guaranteed mortgage, you're typically required to purchase flood insurance, which can be a steep bite out of your housing budget. The NFIP has set up a Community Rating System that helps areas reduce their flood risk and conversely drop their premiums by as much as 45% through community education and tighter building standards.