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Flood insurance—a blessing or a curse?

FloodBad news can come in all forms, from the loss of a job to your car not starting. When it comes to property owners, they often cringe when informed by their banker that their property is located in a flood zone and they must buy flood insurance. But is this really bad news?

Flood insurance tends to be a low priority option among most insurance buyers. Some consider flood insurance and a root canal to be equally desirable. In fact, most flood insurance policies are purchased only because a lending institution insists upon it.

Does flood insurance deserve such a bad rap? What does it mean to be in a flood zone? Why don’t more insurance customers actively seek flood insurance? To help answer those questions, let’s review some flood insurance basics.

Living in a flood zone

What does it mean to be in a flood zone? The fact is, every property is in a flood zone. It’s the specific flood zone that matters. Lenders don’t require flood insurance in low-risk areas (where flood insurance rates are low). They do require flood insurance in high-risk zones (where rates are naturally higher). Thus, if your building is located in one of the higher risk areas, and you have a mortgage, chances are good that you already have flood insurance.

Why would anyone buy flood insurance in areas where it’s not required by lenders? Facts tell the story—20–25 percent of flood damage occurs in areas not designated as high-risk flood zones. Flooding doesn’t always occur due to lakes and rivers overflowing their banks. Flooding can also result from heavy rains and melting snows. Any rapid and unusual accumulation or runoff of water from any source can cause damage. And as additional development occurs in urban areas, there’s less greenspace available to absorb water, resulting in additional runoff.

Coastal concerns

It’s understood that buildings located in coastal areas are subject to damage from windstorms. But many are unaware that extreme damage caused by storm surge is not covered by standard property policies. Storm surge is only covered by a flood policy. Owning a flood insurance policy can provide great piece of mind to coastal property owners.

Coverage for greenhouses, too

Many greenhouses are eligible for flood insurance. All it takes are two walls and a roof covered by a rigid covering. Only those greenhouses covered with flexible polyethylene plastic don’t qualify for coverage. The National Flood Insurance Program insures commercial buildings worth up to $500,000. For purposes of buying flood insurance, a range of gutter-connected greenhouses is considered one building.

Flood insurance is available year-round, however, with only limited exceptions, there’s a 30-day waiting period before the coverage takes effect.

For buildings worth more than $500,000, your insurance agent may recommend a Differences in Condition (DIC) policy. This is a special policy designed to cover both flood and earthquake damage.

For structures located in low-risk flood zones, the DIC policy may be all you need. If your property is located in a high-risk flood zone, you’ll probably be asked to insure the values up to $500,000 on a standard flood policy, and the DIC policy will cover the building value exceeding $500,000.

The federal government seems to be encouraging private insurers to offer flood insurance to compete with plans offered by the National Flood Insurance Program (NFIP). This development should be good news for consumers, particularly those located in low and moderate-risk areas. The federally backed program will likely continue to be the solution for customers in high-risk areas.

An affordable option

Floods can occur virtually everywhere. Flood insurance, especially in low-risk areas, is surprisingly affordable. Most business owners wouldn’t consider driving an uninsured vehicle or allowing their standard property insurance to lapse. But many don’t consider flood insurance to be an important consideration.

We recommend that you check out flood insurance and make an informed decision. Contact a Hortica agent, and we can go over your flood insurance options. After all, once the water starts running, it’s too late.