When Should a Homeowner Purchase Flood Insurance?

A homeowner should purchase flood insurance if a home is located in an area with a reasonable risk of flooding. In some cases, a bank may require it to offer a loan, and homeowners without outstanding mortgages may want to consider buying flood insurance if they live in an area where banks would require it to protect their investments. Flood insurance is often inexpensive, and it can be a wise purchase decision. In the United States, the National Flood Insurance Program pays out an estimated 25% of claims to homes in “low risk” areas, places where insurance is not normally required.

For homeowners with loans, banks usually insist on flood insurance if a home is located in a 100 year flood plain. It can also be a good idea to purchase flood insurance if a house is in a 500 year flood plain as well; although the risk is lower, it is still present, particularly if a home will be held in the long term, for 30 years or more. Homeowners who do not hold mortgages can look at a flood hazards map or talk to an insurance agent if they are not sure about whether they should purchase flood insurance.

When a home is located in an area with low flooding risk, it can be tempting to not purchase flood insurance to save money. Homeowners may want to think about what they would do in a worst-case scenario; flood insurance can provide complete coverage, paying for repairs or replacement when a homeowner cannot. It is also very inexpensive for homes in regions where flooding is infrequent. This may make it a sound investment.

Homeowners should definitely not wait to purchase flood insurance. Insurance policies can take some time to kick in, and hedging bets may result in taking significant losses. If the climate in a region appears to be shifting, for example, the government's estimates of flood risks may be out of date, and it can be advisable to purchase flood insurance before the flood risk gets an upgrade, or before storms create major flooding.

Renters should also consider flood insurance. Homeowner's insurance covers the home itself along with major appliances, but not the contents. Renters with concerns about property losses in flooding and other events can buy insurance policies to cover their furnishings and other possessions. Flood insurance for renters is not very expensive and will be significantly less costly than paying out of pocket to replace belongings after a flood. It is important to be aware that landlords are not obligated to compensate tenants for loss of property unless the loss is the result of negligence on the part of the property owner.