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Flood insurance offered separate from homeowners coverage

Homeowners insurance provides financial protection for a wide variety of perils - fire, lightning, theft, vandalism, and many others.

But the typical policy excludes a number of perils, one of which is natural flood. Homeowners, farm owners, and business insurance policies don't provide payment for damage caused by natural floods.

But property owners can obtain protection for flood damage.

Flood insurance is available through a flood insurance policy offered through the federal government's "Write Your Own" National Flood Insurance Program (NFIP). Nationally, there are three million policies in force.

The coverage can be purchased from many insurance agents who represent private insurers. The federal government's program underwrites the coverage.

Through this program, participating companies make the coverage available and pay claims on behalf of the federal government. The government, in turn, reimburses the company for policyholder losses.

Typically, flood insurance covers damage caused when a body of water overflows from above-normal cyclical levels.

For a property to be covered, the community where it's located first must be signed on as a participant in the NFIP. To participate in the program, the community must take certain steps to reduce future flood risks in special flood zones. Once the eligibility is established, the federal government will make flood insurance available to interested residents and businesses in that community.

How flood insurance works

A building and its contents are treated separately under the program so either or both can be insured. For residential buildings, coverage of up to $250,000 is available; up to $100,000 is available for contents. Coverage for nonresidential structures and farm buildings and separate coverage for contents are available up to $500,000. Renters are also eligible for the protection, though they need only to insure their contents.

The average annual premium across the country is about $300 for $100,000 worth of coverage.

Identical policies will cost the same, regardless of what insurance company handles the application, because flood policies are underwritten by the federal government.

Cost varies according to the location of the property being insured, the type of construction, elevation, and other factors--the same as for typical homeowners coverage. Prices also reflect how prone to flooding your neighborhood is, as some areas are considered to be more high-risk than others.

Costs may be much less than average if the property is not located in a designated flood plain. Flood zones are determined by government maps.

For those outside the high-risk floodplain, an alternate policy is available. The Preferred Risk Policy (PRP) is low-cost flood insurance. The PRP combines structure and contents coverage in one. Premiums range from $80 to $260.

When a claim is paid, a $500 deductible is applied. The building and contents deductibles are applied separately.

Besides covering certain types of water overflow, flood insurance provides limited reimbursements for expenses incurred in preventing flood damage, such as sandbags and lumber. However, flood insurance does not cover property damage caused by rain entering your home or business through openings in the roof or walls. That's typically covered by standard homeowners' policies.

Nor does flood insurance cover flooded basements from backed up sewers or the inability of sump-pumps to handle runoff from torrential rains. Coverage for those types of losses might be available as an endorsement to an existing homeowners, renters or business insurance policy.

A homeowners policy does not cover rising water of any kind.

For the most part, water damage coverage in homeowners policies is limited to other elements that allow water into the home. For example, if a windstorm tears away part of the roof or blows in a window; or if a tree limb falls and gashes the roof, the resulting water damage would likely be covered.

Those interested in flood insurance are advised first to determine the status of their community's eligibility in the NFIP by contacting local officials. Then, in consultation with an insurance agent, coverage needs should be assessed. It is important to be aware of what insurance covers and what it does not.

Insurance customers should take note that, in general, there is a 30-day waiting period when purchasing flood insurance. There is no waiting period if the initial purchase is in connection with the making, extending or renewing of a loan.