insurance

Protect Your Home and Finances Against Floods

Make sure you have flood coverage, and check into government programs that help residents in federally declared disaster areas cover uninsured losses.

After seeing photos of the devastating flood damage in the South over the past few weeks, I was wondering whether homeowners insurance provides any coverage for flooding or if there’s any help from the government for people who don’t have flood coverage?

Homeowners insurance typically doesn’t cover flooding, but you can get a special flood policy through the federal government’s National Flood Insurance Program. If you live in a high-risk area, your mortgage company may require you to get flood insurance. But even if your lender doesn’t require flood insurance, it may be worth investigating. There’s a 30-day waiting period before coverage takes effect, so you’ll need to act quickly if you want to have a policy in force during hurricane season, which begins June 1.

Flood insurance can be inexpensive in low-risk areas. If you don’t have a basement, the annual premium for a preferred-risk policy can cost as little as $365 per year for the maximum coverage of $250,000 for your dwelling and $100,000 for your possessions. If you have a basement, the premium increases to $405 per year. In a moderate-risk area, similar coverage runs about $1,500 or more per year, and in a high-risk area, premiums cost $2,600 per year or more. FloodSmart.gov has a tool that lets you type in your address and immediately see your property’s flood risk, your estimated premium and contact information for agents serving your area (you can usually get flood coverage through your homeowners insurance agent, too).

If those coverage limits aren’t high enough, you may be able to buy additional protection through your homeowners insurer (called “excess flood coverage”) to raise flood coverage to match your homeowners insurance protection limits. Chubb, Fireman’s Fund and several other insurers offer these policies, which also provide replacement value coverage for contents (rather than depreciated value) and coverage for some additional living expenses if you need to move out of your home temporarily because of the flood damage.

Adding low-cost sewage back-up coverage to your homeowners insurance policy can help you squeeze out extra coverage that could help offset losses after a storm. It generally costs about $50 per year for $10,000-$20,000 in sewage back-up coverage, which will protect you if your sewer backs up or if water gets into your house because your sump pump stops working. Most home insurance policies will not cover sewage back-up without this rider.

If you live in a federally declared disaster area, you may qualify for financial assistance from the Federal Emergency Management Agency for any uninsured losses. See FEMA’s list of eligible counties which qualified as federal disaster areas due to tornadoes and flooding in the past few months. For details about the assistance programs, see FEMA’s Help After a Disaster and FEMA’s Apply for Assistance page.

Residents in federally declared disaster areas can also apply for low-interest loans from the Small Business Administration to help pay for uninsured damages. Despite the name, SBA disaster loans are not limited to businesses. Homeowners can borrow up to $200,000 to replace or repair damaged property and up to $40,000 to cover personal property, furniture, carpeting and other items damaged by the disaster. The government does consider your credit record and repayment ability, but it tends to be more lenient than commercial lenders. See the fact sheet and information page at the SBA Web site for details and a link to an electronic application.

You may be able to deduct uninsured losses from your taxes, and if the damage occurred within a federally declared disaster area, you have the option of deducting the loss on your tax return for the year immediately before the disaster -- which can result in a faster refund. See the IRS’s Tax Relief in Disaster Situations page for more information and links to state-specific information for victims of recent tornadoes and floods. Also see the IRS’s Disaster Assistance and Emergency Relief page for more information, and IRS Publication 547 Casualties, Disasters and Thefts.

Finally, see Lessons From the Floods for information about the aftermath of the Midwest floods of 2008. Also see How to Prepare for an Emergency for steps to help you prepare for a disaster.

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