The common reason why anyone purchases flood insurance is because they are required by their mortgage lender to do so. Standard home insurance policies are very clear about excluding damage caused by flood events and many homes are located in areas potentially prone to floods. As a result, your mortgage lender wants to protect its investment and will require you to purchase insurance. It’s not a bad idea and it seems like a reasonable request. However, many homeowners who are not in areas perceived to be flood-prone or who do not have a mortgage on their home may not think they need the insurance. Unfortunately, the recent issues with superstorm Sandy on the East Coast have certainly made people take notice of the coverage.
Most flood insurance is actually supported behind the scenes by the federal government through the National Flood Insurance Program (NFIP), which then offers it through regular home insurance companies. The coverage is standardized along with the rates and the idea is to make the coverage fairly seamless with your regular home insurance policy. You can go to your regular insurance company or insurance agent and ask for flood coverage in addition to your regular home insurance policy. There’s no need to call up the federal government, trying to find someone who will sell you flood insurance. Can you imagine how time-consuming that process would be?
With all the ease built into the process, it’s a bit troubling that more homeowners have not taken advantage of the flood insurance program. Unfortunately, each time a severe storm event happens, the news is filled with stories about homeowners who have lost their house and possessions without any benefit of insurance. A recent article in the Queens Chronicle describes the relative affordability of the coverage and yet, many homeowners simply don’t purchase it. Some homeowners don’t buy flood insurance because there’s no one to require them to do so. That’s really not an effective risk management policy as many types of insurance are not “required” but are still good ways to protect you from loss.
You might only think about flood insurance when large events such as Sandy take place and cause some discussion. However, flood insurance can protect you in rather mundane ways as well. Any time there is rising water, you are at risk for flood damage that is not covered by the standard home insurance policy. Just because you don’t live in a low-lying area or near the coast does not mean you are not at risk for what your insurance policy considers to be flood damage. When contemplating a flood insurance policy, you really should just think of it as a part of your overall home insurance plan and not as an optional, separate policy.
For example, your standard home insurance policy covers multiple perils, such as fire, wind, and rain. You accept all those bundled perils on the policy and you don’t treat the policy like a cafeteria line, where you can pick and choose the different covered perils. If you were allowed to select and deselect the perils, would you even know which ones to keep and which ones to give up? It would probably be a very difficult decision and you might just leave things as is. Therefore, why should you treat the flood peril any differently? If you simply include the flood policy in the total cost of insurance for your home, you tend to look at it less as an option and more like a comprehensive insurance policy that protects your home from as many perils as possible. The coverage just happens to be on two policies but the interests they protect are the same: you and your home.