Flood insurance

Flood insurance denotes the specific insurance coverage against property loss from flooding. To determine risk factors for specific properties, insurers will often refer to topographical maps that denote lowlands and floodplains that are susceptible to flooding.

Hidden Floods

Nationwide, only 20% of American homes at risk for floods are covered by flood insurance. Private insurers are unable to insure against the peril of flood due to the prevalence of adverse selection, which is the purchase of insurance by persons most affected by the specific peril of flood. In traditional insurance, insurers use the economic law of large numbers to charge a relatively small fee to large numbers of people in order to pay the claims of the small numbers of claimants who have suffered a loss. Unfortunately, in flood insurance, the numbers of claimants is larger than the available number of persons interested in protecting their property from the peril, which means that insurers are unable to cover their costs in flood insurance.

In certain flood-prone areas, the Federal Government requires flood insurance to secure mortgage loans backed by federal agencies such as the FHA and VA. However, the program has never worked as insurance, because of adverse selection. It has never priced people out of living in very risky areas by charging an appropriate premium, instead, too few places are included in the must-insure category, and premiums are artificially low." [" [http://www.time.com/time/magazine/article/0,9171,1229102,00.html Floods, Tornadoes, Hurricanes, Wildfires, Earthquakes... Why We Don't Prepare.] " By Amanda Ripley. Time. August 28, 2006.] The lack of flood insurance can be detrimental to many homeowners who may discover only after the damage has been done that their standard insurance policies do not cover flooding.

Flooding is defined by the National Flood Insurance Program as a general and temporary condition of partial or complete inundation of two or more acres of normally dry land area or two or more properties (at least one of which is your property from: Overflow of inland waters, unusual and rapid accumulation or runoff of surface waters from ANY SOURCE, and mudflows. [http://www.fema.gov/pdf/nfip/manual200805/15pol.pdf]

This can be brought on by landslides, a hurricane, earthquakes, or other natural disasters that influence flooding, but while a homeowner may, for example, have earthquake coverage, that coverage may not cover floods as a result of earthquakes.

In the United States

Many insurers in the US do not provide flood insurance in accordance to the risk factors established in some portions of the country. In response to this, the federal government created the controversial National Flood Insurance Program which serves as the insurer of last resort.

The National Association of Insurance Commissioners (NAIC) found that 33 percent of U.S. heads of household still hold the false belief that flood damage is covered by a standard homeowners policy. FEMA states approximately 50% of low flood zone risk borrowers think they are ineligible and CAN NOT buy flood insurance. Anyone can buy flood insurance as long as their community participates in the NFIP, even renters.

If you are eligible, you must purchase a separate flood insurance policy through an insurance company that participates in the National Flood Insurance Program (NFIP). Flood insurance is available for residents of approximately 19,000 communities nationwide.

References


Wikimedia Foundation. 2010.

Look at other dictionaries:

  • flood insurance — Insurance protection against damage caused by floods. For applicable parcels of real estate, lenders with a security interest in that real estate are required by law to either require that borrowers obtain flood insurance or to obtain flood… …   Financial and business terms

  • Flood Insurance — A financial instrument that protects real property owners from water damage to the structure and/or contents of their property. While flood insurance can be purchased through many different insurance companies, all policies are federally… …   Investment dictionary

  • flood insurance — insurance covering loss or damage to property arising from a flood, flood tide, or the like. * * * …   Universalium

  • flood insurance — noun : insurance against loss resulting from flood, tidal wave, and rising water * * * insurance covering loss or damage to property arising from a flood, flood tide, or the like …   Useful english dictionary

  • flood insurance — A policy of insurance protecting the insured against loss of or damage to property caused by flood. 29A Am J Rev ed Ins § 1332 …   Ballentine's law dictionary

  • Flood Insurance Reform Act of 2004 — The Bunning Bereuter Blumenauer Flood Insurance Reform Act of 2004 (USPL|108|264) reformed the National Flood Insurance Program (NFIP) and the terms of the National Flood Insurance Act of 1968. It was designed to reduce losses to properties for… …   Wikipedia

  • Flood Insurance Rate Map — Articleissues citationstyle = August 2007 orphan = August 2007A Flood Insurance Rate Map (FIRM) displays the floodplains in a town or area. Such maps are used in town planning, in the insurance industry, and by individuals who want to avoid… …   Wikipedia

  • National Flood Insurance Program — NFIP redirects here. For National Foundation for Infantile Paralysis, see March of Dimes. The National Flood Insurance Program (NFIP) is a program created by the Congress of the United States in 1968 through the National Flood Insurance Act of… …   Wikipedia

  • National Flood Insurance Act of 1968 — The National Flood Insurance Act of 1968 is a piece of legislation passed in the United States that led to the creation of the National Flood Insurance Program (NFIP).[1] The NFIP goals are two fold: • To provide flood insurance for structures… …   Wikipedia

  • National Flood Insurance Reform Act — A Federal law that establishes requirements for flood insurance. Under the National Flood Insurance Reform Act of 1994, lenders taking an interest in real property are required to complete a standard flood hazard determination form developed by… …   Financial and business terms

Share the article and excerpts

Direct link
Do a right-click on the link above
and select “Copy Link”

We are using cookies for the best presentation of our site. Continuing to use this site, you agree with this.