Moving to a Coastal State: Do I Need Flood Insurance?

According to a 2006 report issued by the Federal Emergency Management Agency (FEMA), only 40 percent of people affected by Hurricane Katrina had flood insurance. If you live or are moving to a coastal state, it’s extremely important to carefully consider whether you should obtain flood insurance. In fact, throughout the nation it’s estimated that only one-third of Americans who live in flood-prone areas purchase flood insurance. Depending on where you live, you might not have a choice of whether or not to buy flood insurance; but regardless of that issue, you should seriously consider it.

When you must get it

People who live in FEMA-designated high-risk flood zones are required to get flood insurance. If they don’t, they won’t be able to get a mortgage. FEMA defines “high-risk flood zones” as those areas that are in a 100-year flood plain – which means those areas have a 1 percent chance of flooding at any time during a 100-year period. This designation applies to approximately 10 percent of the United States; these areas are predominantly coastal and river areas. This regulation is primarily why so many parts of the Gulf Coast affected by Hurricane Katrina had flood insurance.

When you aren’t required to get it

Of course, if you don’t live in a 100-year flood plain, it can be tempting to consider foregoing flood insurance. And that might be fine for years – but what if a flood occurs? In fact, “what if?” is the whole reason we purchase auto, home and life insurance policies. Consumers should carefully examine their financial situation and their comfort with risk before deciding against flood insurance. Look at maps that show your home’s elevation – your insurance agent should be able to provide this information. This will help you ascertain your flood risk. Consider recent history in your area. Ask your neighbors whether they have flood insurance. But above all, conduct a gut check: Are you comfortable with the concept of living without insurance? At minimum, you should examine how much the flood insurance policy would cost, and consider how that would affect your overall budget. It might be worth the investment – if for peace of mind, if not nothing else.

About flood insurance

Flood insurance is underwritten and administered by the Federal Emergency Management Agency’s National Flood Insurance Program. Insurance companies sell and service individual policies. Because the NFIP underwrites the policies, flood insurance is unlike other insurance in that premiums will be the same no matter which insurance company services the policy. Most large-scale homeowner insurers offer flood insurance. The FEMA Web site lists all participating insurance companies.

Flood insurance premiums can vary by area, but on average they cost $400 annually. In high-risk areas such as the Gulf Coast, the premiums can be $700 or more. FEMA can institute rate caps, so currently premiums can’t increase by more than 10 percent year to year. Legislation could affect the rate increase caps, so keep this in mind as you ponder purchasing a flood insurance policy.