A wakeup call for flood insurance; here’s how to afford it

In Little Falls, the Peckman River rose 15 feet as cars that had been washed away from a dealership crashed into a bridge.

By Monday, a state of emergency was declared in five counties throughout the state.

Weather events such as this one reinforce the importance of transferring flood risk to insurance products.

This cannot be overstated.

According to the Federal Emergency Management Agency, it can cost about $27,000 to recover from just an inch of water inside a 2,500-square-foot one-story home with possessions worth $50,000. The cost nearly doubles for a house twice the size with twice the possessions.

Floods cost Americans $8.2 billion annually. Following are a few key notes about flood insurance for businesses and homeowners:

<Homeowner and renter insurances typically do not cover flood damage.

<Flood insurance can only be purchased through an insurance broker or an insurer participating in the National Flood Insurance Program. The NFIP, which is administered by FEMA, seeks to reduce the impact of flooding on private and public structures by providing affordable insurance to businesses, property owners and renters and by encouraging communities to adopt and enforce flood plain management regulations.

<Flood insurance includes separate coverages and deductibles for a building and its contents.

<Typically, there is a 30-day waiting period from the date of buying flood insurance until the policy goes into effect. There are exceptions. For example, there is no waiting period if a homeowner selects additional insurance as an option on a policy renewal bill. Check with your broker for additional exceptions.

<Federally regulated or insured lenders require flood insurance for a mortgaged property in an area at high risk of flooding. A lender may still require flood insurance even if the property is not in a high-risk flood area.

FEMA issued an advisory detailing five ways to lower the cost of flood insurance. While some of these are costly, they are worth reviewing:

<You can reduce or eliminate the need to pay flood insurance entirely by relocating your home on a portion of your property that has its natural grade above the base flood elevation.

If you are getting ready to build a new home or structure, evaluate your property for a suitable building area outside the flood plain.

<Elevate your building above the base flood elevation.

Elevating just one foot above the base flood elevation can result in a 30 percent reduction in premium, while elevating three feet or more above the base flood elevation can mean a 60 percent reduction.

<An additional surcharge will be added to your premium if any machinery or equipment servicing your building is below the base flood elevation.

If you elevated your house or building to a safer level, relocate machinery and equipment above the base flood elevation.

<A lack of proper flood openings is a common reason why insurance policies are severely rated.

For buildings in the flood plain, there must be two openings with one square inch of opening per square foot of enclosed area. The bottom of the openings can be no higher than one foot above the exterior finished grade.

<Basements in new buildings constructed in a flood plain are prohibited, unless explicitly authorized. FEMA considers crawl spaces that are subgrade on all sides to be basements.

If your community has adopted building standards that allow such construction, homeowners in the flood plain with an excavated subgrade crawl space will bear an additional financial burden through a 15-20 percent increase on flood insurance premiums. To eliminate that cost, backfill any excavated areas within the foundation.

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Since more than 20 percent of flood claims originate from properties outside the high-risk flood zone, flood insurance is still a valuable risk transference even if you own a home outside the high-risk zone.

Homes outside the high-risk flood zone may qualify for a more affordable preferred risk policy. Check with your broker to see if your home qualifies.

Based in Warrington, Kirk Salmon is a sales and relationship manager concentrating on the Lehigh Valley at KMRD Partners Inc., a risk and human capital management consulting and insurance brokerage firm with three offices in southeastern Pennsylvania. He can be reached at [email protected].