Insurance… Facts or Myths

Much of what you know about federal flood insurance may be flood insurance myth.


Myth #1: Hurricanes, not floods, are the No. 1 natural disaster and cause the biggest economic
losses in the United States.


Hurricanes grab the headlines, but because floods happen in virtually every part of the country,
they cause more losses than any other type of natural disaster.


What causes floods?


•Rising rivers
•Early snowmelts
•Manmade problems from the construction of roads, shopping malls, homes, and industrial


Myth #2: Everyone who lives in a flood zone has to buy flood insurance.


Nope. You must buy flood insurance only if you meet all three of these criteria:


•You buy a home in a special flood hazard area where there’s a 1% chance of flooding in any
•Your community participates in the National Flood Insurance Program.
•You buy your home using a loan from a federally insured financial institution, or a Fannie
Mae- or Freddie Mac-guaranteed loan.


If you don’t meet these three requirements, no one will make you buy flood insurance.


About 5.6 million home and small-business owners live in the more than 21,000 communities that
participate in the flood insurance program, according to the Government Accountability Office.


Myth #3: Flood insurance is always expensive.


Flood insurance through the National Flood Insurance Program is sometimes expensive and
sometimes cheap, depending on how much your home and its contents are worth.


•It can cost up to $6,000 a year if you buy the highest possible coverage of $250,000 and live
in a high-risk area.
•It could cost $472 for $35,000 in damage coverage in a high-risk area.
•It can cost as little as $129 a year for $20,000 of rebuilding coverage and $8,000 in contents
in a low-risk area.


Premiums vary a lot based on where you live. If you want to buy $250,000 of building coverage
and $100,000 of contents coverage, you’d pay about:


•$6,000 in a high-risk coastal area
•$2,700 in a high-risk inland area
•$400 a year in a low-to-moderate-risk inland area.


Myth #4: Taxpayers are footing the bill for federal flood insurance.


The NFIP doesn’t spend any tax dollars. The government sets the premium rates high enough to
cover flood insurance claims and operating expenses in an average historical loss year. The
program can borrow money from the U.S. Treasury when losses are heavy, but has to pay those
loans back with interest.


Myth #5: Companies sell flood insurance, so we don’t need government to compete.
Private flood insurance isn’t available for homes valued at less than $1 million and only four
companies offer flood insurance to home owners with high-value property, according to a
Government Accountability Office study. The National Flood Insurance Program is the only program
offering low- and middle-income home owners flood insurance. If it disappeared, those home
owners wouldn’t have another option.


Myth #6: I don’t own a beach house. People who do use flood insurance most.


Many people associate beachfront property with flooding, but more than 98% of the properties
insured through the National Flood Insurance Program are inland. Most beach areas are off limits
to the National Flood Insurance Program because the Coastal Barrier Resources Act bans federal
support of beachfront development.


Myth #7: The flood insurance program subsidizes beachfront home owners.


Five of the top 12 states with the most number of years in which claims exceeded premiums are in
the Midwest. Many of the states hardest hit by floods are nowhere near the beach:


•South Dakota
•West Virginia


In the few coastal areas where the National Flood Insurance Program is allowed, the number of
flood insurance policies issued represents only 2% of all NFIP policies.


Dona DeZube, HouseLogic’s News Editor, has been writing about real estate for over two decades.
She lives in a suburban Baltimore 1970s rancher that flooded in one corner of the basement when
she first bought it. The flooding stopped after she added a drain to the front yard and gutters.


Source: HouseLogic [March 23]