When the Water Rises

Disasters usually have a way of reminding us of important lessons. In late-summer 2005, that disaster was Hurricane Katrina, and the lesson was to always be prepared.

Out of the rubble of the Gulf Coast region emerged a lack of preparedness on a variety of levels. On a basic level, most citizens lacked flood insurance, even though New Orleans is a city surrounded by water. In fact, it was estimated that between only 30-40% of residents hit by Katrina had any form of flood insurance. In some places, this number was even lower.

Many policyholders do not realize that basic homeowners insurance does not include protection from flood damage. Instead, the Federal Emergency Management Agency (FEMA) administers flood insurance through a federal program.

In many cases, if your home is in a high-risk area for flooding, you must get flood insurance in order to get a mortgage. In the wake of Katrina and later, Hurricane Rita, many called for flood insurance to become mandatory in high and even medium-risk areas. Just as auto insurance is required by the government, flood insurance could be too. Increased participation would also mean much lower rates, the more people who sign up, the cheaper the insurance is.

Flood insurance is actually quite affordable. But that has yet to increase its popularity. According to insure.com, only one-quarter of the most vulnerable homes are insured, even though statistics have shown that their homes are much more likely to be flooded than be destroyed by fire.

And in the case of Katrina, flooding wasn't the only damage to homes and businesses. Looting and fires ended up destroying many possessions.

Prices depend entirely on the amount of coverage you wish to purchase and the area your home is located in. The "average" cost of flood insurance is about $438 for a year. Costs for the insurance can range from around $2,000 a year in a flood-prone area for $250,000 in building coverage with $100,000 coverage for the contents. If you simply live near a flood zone, instead of in it, the prices for $35,000 in building coverage and $10,000 for the contents will cost about $300 a year. This is for people who live in a low to medium risk area.

Recently, flood insurance providers in South Carolina and California, two flood-prone areas, have received a large increase in calls asking about flood insurance policies. This may be a sign that the disaster in the Gulf has helped to remind people of the need for preparation.

Flood insurance may not be right for you, and you may not live in a high-risk area. But at any given moment, many formerly safe areas can be flood-prone and the results can be devastating. Hurricanes Katrina and Rita have taught us all to be more prepared in the event of a disaster and one of the best ways to make sure your home and possessions are safe, is to buy flood insurance.

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