Need for Flood Insurance Hits Home

Homeowners ought to buy flood insurance even if they live in a dry area, as disaster can take many forms.
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Images last week of North Dakota residents working feverishly in below-freezing weather to sandbag the banks of the Red River and save their towns have been compelling. And it should also make one think, how safe is my home from flooding?

Although flooding is considered a disaster that affects houses built in river basins, the truth is virtually no home is flood-proof. If your house is built on flat ground, it doesn't matter how close you may be to a body of water -- a rapid snowmelt, a terrific storm or even an area drainage problem could put you under water. And if your home is up on a hill, don't get too comfortable. Water running down can be diverted accidentally and get your sneakers wet in the living room.

Unfortunately, when people see the threat of flooding, they assume their homeowner's policy will be enough to cover the damage. But flooding is the most common natural disaster in the U.S., and consequently most policies exclude flood damage. In 1968, the National Flood Insurance Program (NFIP) was formed to cover devastating water disasters and policies were sold through private insurers. Some of the biggest insurers include


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, owned by billionaire investor Warren Buffett's

Berkshire Hathaway

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So are you at risk for flood damage? An easy way to check is to look up

, a Web site run by the NFIP. You can enter your address and the database will let you know whether your property is in a low-, medium- or high-flooding risk area and how much you could expect to pay for flood insurance. Low-risk area residents shouldn't get too comfortable, though. The NFIP estimates that 25% of its annual claims come from low- and medium-risk areas.

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.

Overall, remember the threat that water can be to your home and taking precautions now to stay dry will pay off in a disaster.