Most of us saw the media coverage of the incredible devastation wrought by the floods in Southeastern Minnesota.   Homes miles away from any type of body of water were completely destroyed by floods and flood related mudslides.  Unfortunately, the vast majority of those who suffered damage did not carry flood insurance and “flood” is one of the primary exclusions on a homeowner’s policy.  Those without flood insurance are trying to rely on the dollars made available by the state and federal government.  All recipients of “disaster dollars” have one thing in common however, obtaining this money is a long arduous process and in almost 100% of the cases they never come close to being fully restored financially to where they had been before the flood. 

So the answer is, carry flood insurance?  Not so fast.  The basic premise of risk management requires the question to be asked, what is the risk of suffering a loss due to flood, is there anyway to mitigate or eliminate the risk and what is the cost of the insurance?  The National Flood Insurance Program publishes a document that categorically states, “Everyone lives in a flood zone”.   This seems a bit far-fetched however many in Southeastern Minnesota felt they were nowhere near a flood zone yet their homes were completely destroyed by floods.  The simple fact is that everyone can suffer a loss due to flood or surface water.  The trick is to weigh your properties susceptibility to flood or surface water and determine the price of coverage.

Purchasing flood insurance is very simple.  The federal government sponsors the “National Flood Insurance Program”.  Anyone can purchase flood insurance through this program provided his or her community is enrolled in the program (which almost all are). 

To find out if you are in a flood zone, contact the city offices of your community, as they will have this information readily available.

Any agent can assist you in purchasing this insurance but understand, like most federal programs, the National Flood Insurance Program does not provide automatic or perhaps enough coverage.  Contained in the policy language of the National Flood Insurance Program dwelling form is the definition of flood:  “a general and temporary condition of partial or complete inundation of two or more acres of normally dry land area or of two or more properties (at least one of which is your property) from: overflow of inland or tidal waters or unusual and rapid accumulation or runoff of surface waters from any source.

There are at least two troubling issues with this definition.  First, the flood needs to include more than just your property or at least a two-acre area in order to be considered a flood.  This is rather limiting.  You have the very real possibility of suffering substantial surface water damage and not have coverage although you purchased flood coverage.  Second, the amount of coverage you can purchase can be an issue as well.  The maximum property coverage you can purchase through this program is $250,000 for a private dwelling and $100,000 for contents.  This is not a lot of money given today’s replacement costs.  While these issues are substantive, I do not want to give the impression that this program is too flawed to consider.  Certainly those that live next to or near a body of water need to purchase this coverage.  The risk is simply too great not too. 

So how about the vast majority of us who either don’t live near or next to a body of water, don’t feel the amounts of coverage that can be purchased are enough but are still concerned about flood or surface water?  There is a solution…private insurance.

Some private carriers are now offering their own surface water and flood endorsements on the homeowner’s policy.   Most of the private carriers are offering this coverage without the limitations of the National Flood insurance program listed above.  Private carriers are also writing insurance for flood or surface water up to the amount of coverage carried on your home.  Finally, private carriers are writing excess flood coverage over the National Flood Insurance Program, which eliminates the issue of inadequate coverage.

Bottom line, if you live in a medium to heavy flood zone purchase coverage through the National Flood Insurance Program.  If you work with an agent who represents carriers offering primary and/or excess flood coverage, purchase the proper amount for your contents and dwelling over and above the amounts available through the National Flood Insurance Program.

Posted 3:42 PM  View Comments

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