When torrential rains and massive snowmelt swelled North Dakota's Souris River to 100-year flood levels in June, displacing more than 10,000 residents of Minot, Farmers Insurance agent James Bierschbach's phone began to ring.
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"Those houses had been in the high-risk flood zone A back during our last big flood in 1969," he says. "But in the early '80s, they were rerated to zone X, the 100-year flood level, after some dikes were put in."
As a result, homeowners in the flooded area who had long ago dropped flood coverage or weren't ever required to purchase it were stuck with steep financial losses because most homeowners insurance policies don't cover flood damage.
Not all of Bierschbach's callers were reconsidering flood insurance, however. Some were now buying flood coverage because they had to do so.
"When people want to borrow the money to rebuild, the banks and the Small Business Administration are now requiring flood insurance on any of the houses down in that area to protect them against another flood," he says.
Throughout much of the Northeast and Midwest, the once-in-a-lifetime flooding of 2011, some of which resulted from slow-moving Hurricane Irene, has many homeowners rethinking their need for flood insurance.
"This year really highlighted the question: What is plan B if I don't have flood insurance?" says Michael Barry, spokesman for the Insurance Information Institute. "They've really gotten a quick primer on the financial recovery process."
Buying flood insurance through the National Flood Insurance Program, or NFIP, a government program administered by the Federal Emergency Management Agency, is mandatory for federally backed mortgage holders who live in a FEMA-designated Special Flood Hazard Area, or SFHA. But for those who own their home outright or reside in non-SFHAs, or NSFHAs, the decision can be a difficult one.
"The first thing that people need to understand is everybody lives in a flood zone," says Janet Scott-Buckley, office manager of Harrington Insurance Agency in North Andover, Mass. "The question is, how high is your risk?"
These steps will help you assess your need for flood coverage.
Step 1: Assess Your Home's Flood Risk
Just because you don't live in a high-risk zone doesn't mean you're safe from flooding.
According to FEMA, floods are the nation's No. 1 natural disaster and occur in all 50 states. One in 4 floods occurs in NSFHAs. NSFHA homeowners file more than 20% of all NFIP claims and receive one-third of federal disaster assistance for flooding.
Nor are you in the clear from flood damage if you own a condominium several stories above ground level.
"Just because you are high up doesn't mean you are not at risk," says Lynne McChristian, the Florida representative for the Insurance Information Institute. "If a flood destroys the pilings underneath and the building collapses, if your unit was above that, you have no recourse if you don't have flood insurance."
Step 2: Consider Your Worst-Case Scenario
Because most homeowners insurance policies specifically exclude flood damage, unless you have a NFIP policy, the total cost to repair or rebuild your home and replace damaged contents could fall to you.
However, if the flood that swamps your home is severe enough to be declared a federal disaster, you could receive a limited helping hand from Uncle Sam.
"In that case, you can either apply for a direct grant, which usually caps out at no more than $33,000, or you can apply, if eligible, for a low-interest (Small Business Administration) loan," says Barry.
Step 3: Find Out if You're Eligible for Flood Insurance
You need not live in a high-risk flood zone to purchase flood insurance, but you must live in a community that participates in the National Flood Insurance Program.
"Most communities do, but not all," says Barry. "FEMA asks local governments to take certain steps, such as shoring up levies, in exchange for NFIP's willingness to write policies in their area."
You can find out whether your community participates by contacting your homeowners insurance agent or by visiting NFIP's online Community Status Book.
Step 4: Know the limitations of flood insurance
Federal flood insurance is available up to $250,000 for building damage and $100,000 for contents. However, coverage is limited for basements, including walkout basements.
"People have this nice family room in the basement and think if they buy flood insurance, all of that stuff is going to be covered, but it's not," says Scott-Buckley. "On the plus side, structural flood covers all of your home's systems: the foundation, electrical and plumbing systems, furnaces and water heaters, even those located in the basement."
Step 5: Crunch the Numbers
Now that you've considered your flood risk, worst-case financial exposure, your eligibility for flood coverage and the limitations of federal flood insurance, it's time to consider premium cost.
The good news is, if you live in a moderate- to low-risk area, you'll likely be eligible for a Preferred Risk Policy, which bundles building and contents coverage for $129 to $405 per year. A renter's flood policy for contents only starts at $49 a year.
If you're in a SFHA, rates range from $472 to $2,930 for building and contents, $376 to $1,805 for building only and $136 to $1,165 for contents only.
Scott-Buckley and Bierschbach advise all of their clients to purchase flood coverage. "Your home is more than twice as likely to be damaged by flood than by fire," Bierschbach says.
Still, he admits that, with a 100-year flood now behind them, some homeowners may be tempted to roll the dice.
"The question is, is this the last year of the 100 years?" he says. "If so, next year could be the first year of the next 100 years, and you could get a flood again."