FAQ About Flood Insurance
Some common questions about insurance coverage:
- Is this type of insurance required?
- Is it insurance expensive?
- How does this type of insurance work?
- How do I determine how much insurance coverage I need?
- What is the minimum for this type of insurance coverage?
- Does Flood Insurance have to be with the same company as my other insurance?
- What questions will my agent ask me when I call?
- Where is the property located?
- If the property is in a high-risk flood area, does the purchaser want a policy offered through the government or private insurance company?
- Does the purchaser want to insure both the real and personal property?
- What contents of the real property will be insured?
- What is the value of the real property?
- What is the value of the personal property
- How much coverage does the potential purchaser need?
- Does the purchaser have an existing homeowner/general business/renter insurance policy?
- What is the potential purchaser’s claims history?
- What does the rating system mean and how can I find out how find out how an insurance company is rated? A, A+, A++? www.ambest.com
Homes and buildings in high-risk flood zones with mortgages from a federally regulated or insured lender must have insurance coverage. These high-flood zone areas have a one percent or greater chance of flooding in any given year.
Compared with other forms of insurance, this type of insurance, whether purchased through a private insurance company or the federal government, is relatively inexpensive for those in a low-risk flood zone. The annual insurance premium for a single-family, one-story residence is about $400-$450 nationally, but can be as low as $112 in a low-risk area and as high as $2,000 per year in high-risk areas.
This type of insurance protects an insured’s real and personal property against losses sustained by flood damage. A standard homeowner’s, general business, or renter’s insurance policy normally does not cover flood damage. Residents or business owners in communities that are in low-risk flood areas that do not participate in the National Flood Insurance Program cannot purchase insurance coverage. However, residents or business owners in communities in high-risk flood areas, also known as Special Flood Hazard Areas, can purchase insurance coverage from either a private insurance company or the federal government.
If a property is located in a high-risk flood zone, the amount of insurance must be the lesser of: the outstanding principal balance of the loan; the maximum amount of coverage available through the National Flood Insurance Program for the particular type of structure; or the value of the building and its contents – the replacement cost value.
For property that is in a low-to-moderate risk area, the amount of insurance coverage is determined by the policy purchaser after determining the value of the real and personal property to be insured.
For a home or business structure that is located in a flood plain and classified as a Special Flood Hazard Area, the minimum amount of coverage for the structure must be the lesser of the outstanding balance of the loan or the maximum amount of coverage through the National Flood Insurance Program, which is $250,000 for residential property and $500,000 for commercial property.
An insurance policy to cover flood damage does not have to be with the same company as a potential purchaser’s other insurance. A purchaser may buy insurance through any private insurance company that offers this type of coverage or through the federal government if the purchaser’s property is located in a high-risk flood zone.
An insurance agent will ask a potential purchaser:
The insurance rating system is the means by which the financial strength of an insurance company is evaluated. Several insurance rating services examine insurance companies to determine their financial stability, creditworthiness, and vulnerability to adverse market conditions. A potential purchaser can use the rating to assess the stability, health, and strength of the insurance company. The AM Best ratings are commonly used to evaluate insurance companies. An “A++” or “A+” rating means a superior company while an “A” rating means an excellent company.