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by William O. Woody

When disastrous floods struck Grand Forks, N.D., and much of the surrounding plains of Minnesota and the Dakotas last spring, only 10 percent of the homes were insured against flood damage.

Why so many of those who need flood insurance fail to get it is puzzling to financial experts. Flood insurance is affordable, easily attainable, and well worth the premiums, say certified financial planner professionals.

Who should buy flood insurance?

Ten million American homes lie within high flood-risk areas, and those homes are four times as likely to be damaged by flooding during a 30-year mortgage as they are by fire, according to the Federal Emergency Management Agency (FEMA). Yet only approximately 25 percent of those homes are covered by flood insurance.

Buyers of federally backed mortgages, such as FHA or VA, are required to buy flood insurance if the home or business is located in a flood zone.

Unfortunately, many remain uninsured because homeowners sometimes let the policies lapse after the first year, some mortgage lenders have failed to comply with the requirements, and some properties may have been bought before the law went into effect in 1968, according to FEMA.

Even people in lower-risk areas should consider flood insurance. FEMA reports that one-third of claims come from outside high-risk areas.

Flooding from hurricanes is covered, but buildings in certain undeveloped coastal areas are not eligible for flood insurance.

How do I know if I'm in a flood-prone area?

Call your local zoning department or the Flood Insurance Program at 800-427-4661.

Isn't flood insurance part of my homeowner's policy?

No. Flood insurance is a separate policy. Though the insurance can be bought through property insurance agents or brokers, all flood insurance is federally backed as part of the government's Flood Insurance Program.

Flood insurance also can be bought directly from the National Flood Insurance Program. For a list of companies that sell the coverage, call the Flood Insurance Program.

Coverage begins 30 days after the premium is paid; coverage for a new mortgage loan becomes effective immediately.

Are there coverage limits?

The maximum coverage for a single-family dwelling is $250,000 and $100,000 for contents (including for renters). Maximum coverage for commercial property is $500,000 for each type.

Typically, flood insurance will not cover the contents in a finished basement nor the improved parts of a finished basement. Nor does it cover sewer backup or water-seepage damage, unless it's due to general flooding.

Replacement-cost coverage is available for a principal residence that is, the policy reimburses the cost of rebuilding the home up to the policy limits but it is not available for the contents. They are covered for only a fair-market value (what you'd get for them at a garage sale).

How inexpensive is flood insurance?

In high-risk areas, it averages $300 a year for $100,000 worth of coverage. The cost can be as low as $85 in lower-risk areas.

Can't I just get a disaster-relief loan instead of buying flood insurance?

You can't get disaster assistance unless your home is within a federal disaster area, and only 10 percent of flooding incidents are declared federal disasters. Average grants per home are less than $2,500.

Plus, in the case of a loan you're paying for principal and interest, a $50,000 home-damage loan from the Small Business Administration will run around $320 a month, versus $300 a year for insurance premiums.

(The preceding article was provided by the Institute of Certified Financial Planners by William O. Woody, CLU, ChFC, CFP, of Stovall Woody Associates.)

INSET CAPTION:

Ten million

American homes

lie within high flood-risk areas, according to the Federal Emergency Management Agency.[[In-content Ad]]

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