Often when you are buying a new home, the lender may require flood insurance. This is especially true if you live in a flood-prone area, or if your home is flooded. Federally mandated by law, flood insurance protects you in the event of a flood caused by natural disasters. It is important to understand that this is different from the insurance that is part of your normal homeowners plan, which covers flooding caused by your plumbing.
If your home is in an area legally classified as high risk, you should purchase flood insurance. Homeowners in flood-prone areas must also carry flood insurance for properties within the designated zone. Homeowners may choose to cancel this coverage after their loan has been paid in full, although it is always safer to keep the policy whenever possible.
There is generally a thirty day waiting period before claims can be made. The only exception to this rule is when the lender requires the insurance as a stipulation of the loan. Because of this waiting period, it’s always a good idea to start your policy before the start of hurricane or flood season in your area.
Flood insurance typically covers not only water damage from floods, but also protects you from flood-related disasters such as landslides, sewer overflows, and fires. The price of your policy will depend on several factors, including the building’s year of construction, occupancy, number of stories, your location’s risk factor, and the deductible you choose. There are several websites available online that will help you calculate your risk factor free of charge.
When shopping for flood insurance, it’s important to shop around and compare the components of the policy, as well as the price. As with any type of insurance, prices vary significantly from company to company. You can often get discounts by bundling insurance policies with your current auto or homeowners insurance provider. Selecting a higher deductible will also lower your out-of-pocket costs initially, but it’s important to make sure you’re setting a deductible that you can reasonably afford in the event of a disaster.
Many people who own their homes without a mortgage payment think they don’t need to maintain their flood insurance, especially if they are in a low-risk area. Contrary to popular belief, low-risk areas flood quite regularly. An estimated 25% of flood insurance claims come from homes in low-risk areas, so don’t be fooled into making this mistake.
The most important thing is that you don’t let your policy lapse. All flood insurance policies expire at 12:01 am on the last day they are in force; however, you will be covered for thirty days after the policy expires. If you have a claim during that thirty day period, you will be covered as long as the new policy is paid in full before the grace period expires. It’s best to play it safe and keep track of your policy’s expiration date to be safe.
