Flood damage insurance is a tricky subject. Most homeowner’s insurance policies do not cover damage from floods. And people often opt out of the coverage. That could be a big problem for you. It’s certainly not the best way to save on homeowner’s insurance.
One way to solve the problem is to buy flood insurance. But if you buy the wrong flood insurance, you could be up a creek without a paddle.
Let me explain. Flood insurance is overseen by a division of the Federal Emergency Management Agency called NFIP. Some people buy coverage directly from NFIP, and therein lies the problem.
I say this because the coverage is limited to$250,000 for a home and an extra $100,000 for the contents if you buy the policy through NFIP. That might not be enough coverage. What to do?
You could buy an add-on policy from a private insurer. These benefits would kick in after the NFIP limits are reached. But you’ll probably save money if you buy one policy from a private insurer rather than purchasing two.
Keep in mind that some companies will only sell you flood insurance if you buy your homeowner’s policy from them too. Private policies can cost more than the NFIP so if you go this route, ask your agent to explain the differences and justify the added cost.
I was reading an article about this subject in the Investor’s Business Daily. In it, they explained that the basic NFIP policy doesn’t cover many items that you may really need coverage for.
Also, according to that article, NFIP policies only pay off if two or more adjacent homes get hit by a flood. Some private policies pay even if your home was the only one damaged. On top of that, private policies often pay for living expenses while your house is being repaired. NFIP typically doesn’t.
In my opinion, this is yet another example of the cheapest not being the best for at least some of us.
In summary, here are the three tips for the right flood insurance policy:
1. Understand that the NFIP policy has very limited coverage. You might even get hit by a flood but not collect from this policy.
2. Consider getting an add-on policy or just one all-inclusive policy from a private insurer.
3. Understand the risks you face and the benefits of the policy.
Bottom line, talk to lots of companies. Get lots of quotes. This is the best way to educate yourself. Do you have flood insurance? Have you ever made a claim? What was your experience?
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