In light of the destruction caused by Hurricanes Katrina and Rita, even homeowners who don't live in flood-prone areas might want to consider purchasing flood insurance. The disasters--and the wave of lawsuits that followed--spotlight the limits of standard homeowners policies. You're typically on your own when it comes to damage from rising water, whether a storm surge or a clogged drain caused it.
But right as millions of us decide the federal government's flood insurance program might be worth having, premiums are about to jump. The National Flood Insurance Program owes significantly more in hurricane damages than it has in its reserves. That means borrowing from Congress or getting a special appropriation, as well as raising premiums. The question is just how much more it will cost, and whether it's worth it given your individual circumstances.
Even at its best, flood insurance is less generous than homeowners coverage. It covers a maximum of $250,000 in property damage and $100,000 in lost contents for residential policyholders. Go to www.floodsmart.govto find an agent near you who sells flood insurance. Agents sell the policies and service claims, but it's the federal government that financially backs the policies. Pre-Katrina and Rita, the average U.S. premium was $400 per year for every $100,000 in coverage. The program recently launched a low-cost policy starting at $112 per year for people with homes in low- to moderate-risk flood areas.
Should you buy? It probably depends on where you live. At a minimum, talk to an agent to assess your risk and to see how much coverage would cost. Even with a hike in premiums, the outlay will be relatively small. And if you live in a low- or moderate-risk area for flooding, you shouldn't have to insure for 100 percent of your home's value. Also, you don't have to insure for the value of the land--only the structure and maybe some contents. For most of us, it's worth having bare-bones coverage just for peace of mind while we try to get images of flooded New Orleans out of our heads.