Should you carry flood insurance?
Julie Garton-Good, GRI, DREI

The past several years have brought on new concerns and interpretations about just who needs flood insurance to protect their property. In fact, a recent survey released by the federal government showed that people in flood plains are 27 percent more likely to experience a flood than a fire during their 30-year mortgage. But it wasn't until four years ago, following the Great Flood of 1993, that lawmakers put some teeth into the loosely knit flood insurance rules.

Today, in order to obtain a loan in flood-prone areas using FHA or VA financing or for loans purchased by Fannie Mae or Freddie Mac, borrowers must purchase flood insurance. Although the average premium is approximately $300 per year, rates can jump as high as $3,000 per year or higher because of the property's location and the risk involved. But deciphering flood-zone boundaries are yet another problem. Since water doesn't always stop at the flood-zone line, homeowners outside of flood plains often have losses as well. That's why before lenders make loans, they hire companies to advise them whether or not the property is in or near a designated flood zone. Buyers typically pay for this service. Increasing property damage and losses have convinced many mortgage-industry leaders that the time has come for all homeowners to accept flood insurance as yet another common cost of purchasing, much as fire insurance has been for nearly a century.

Flood insurance is available to homeowners who reside in areas that have adopted a flood-plain management plan administered by the Federal Emergency Management Agency (FEMA). Flood insurance is not just to cover property damage--it covers the cost of actions to prevent damage as well. Flood insurance, for example, could pay for the cost of sand bags, pumps or other preventative measures. In order for flood insurance to cover a loss, two adjacent properties or two or more acres must be affected. Flooding can be caused by any of the following: the overflow of inland or tidal waters, mudslides or mudflows caused by flooding, the collapse of land along the shore of a body of water or the unusual or rapid accumulation or runoff of surface waters from any source, including rainfall.

You can obtain more information about flood insurance from either the company who underwrites your homeowner's insurance or from the lender who holds your mortgage loan.