Let's Prove We Learned From Katrina And Buy Flood Insurance

By Michelle Singletary
Thursday, May 11, 2006

It's hard to forget last year's hurricane season and the lessons we all should have learned from it.

One of the chief lessons for both homeowners and renters: Consider getting flood insurance.

Here are two facts I bet you didn't know: Floods occur in all 50 states. And most homeowners insurance does not cover flood damage.

Here's another fact you may not have realized: The Atlantic hurricane season begins June 1. It's important to remember that date because flood insurance requires a 30-day waiting period to take effect. This means that if you have damage from a flood, you'd better hope and pray that your policy was put in place 30 days before the damage, or you are not covered.

Only about half of homeowners living in some of the most flood-prone areas of the United States buy federal flood insurance, leaving millions of families at risk for severe financial losses when floods strike, according to a study released this year by the Rand Corp., a nonprofit research organization.

The Rand study is part of a wide-ranging evaluation of the nation's flood insurance system. The study was requested by the Federal Emergency Management Agency, which is still dealing with the devastation of Hurricane Katrina.

"Forecasters say this hurricane season could be as destructive as 2005, the worst on record," said Jesse Muñoz, acting director of the Transitional Recovery Office for the Mississippi Hurricane Katrina efforts, in a FEMA release.

For most homes, apartments and businesses, the only insurance protection against damage from rising water is flood insurance underwritten by the National Flood Insurance Program (NFIP). This program is greatly underutilized, even though flooding is a major source of loss to individuals and businesses throughout the United States, according to the Rand study.

Most homeowners who buy flood insurance do so because they are required by their lenders. That's because they live in areas considered most vulnerable to flooding, the study found. Just 20 percent of homeowners living in the most flood-prone areas buy federal flood insurance when they are not required to do so, the study said.

One of the reasons many people don't buy flood insurance is simple: They don't think they need it, said Lloyd Dixon, senior economist at Rand and lead author of the study.

"If people don't see water, their risk perception is lower," Dixon said.

But roughly 25 percent of all claims paid by the NFIP are for policies in low- to moderate-risk communities, according to FEMA.

Price isn't a factor, Dixon said.

If you don't live in an area with a high risk of flooding, your premium could be as low as $112 a year, which would cover about $20,000 in building damage and $8,000 in contents. You have the option of selecting coverage in a range of yearly premium amounts. For example, for $180 a year, you can get $50,000 in building coverage and $20,000 in content coverage.

If you want more protection, and, again, if you aren't in a high-risk area, you can expect to pay as much as $317 a year for $250,000 worth of building coverage and $100,000 in content coverage. That's about $26 a month. It would cost two people more than that to go see "Mission: Impossible III" with popcorn and sodas.

Here's something else you need to know and probably don't: Flood insurance does not cover improvements to a basement, such as finished walls, floors, carpeting and personal belongings.

It does cover your home's foundation. Functional items in your basement are covered under your policy's building coverage, such as plumbing, furnace, water heater and circuit breakers. Other limited items, such as a washer and dryer or a freezer, are covered under your contents coverage, which must be purchased in addition to building coverage.

In fact, Dixon said that was another reason some people gave for not buying flood insurance. This was particularly true for people who live inland. "It makes the policies less attractive for people with basements," he said.

However, for the purposes of this insurance, the definition of a basement is when the lowest floor is below ground level on all four sides. Therefore, in areas where homeowners typically have basements that are aboveground, flood insurance would cover carpeting, furniture, televisions and improvements, according to FEMA spokesman Aaron Walker.

Flood insurance does not reimburse you for expenses if you are forced to temporarily relocate.

But even with its limitations, flood insurance is worth getting.

If your community participates in the NFIP, you can purchase flood insurance from a licensed private insurance company or through an independent property and casualty insurance agent in your state.

For information on flood insurance, go to http://www.floodsmart.gov/ .

Last year, as I read reports of Katrina families and their hardships, I made a mental note to purchase flood insurance. But I didn't do it. This year, I will. I don't want to learn my lesson the hard way.

· On the air: Michelle Singletary discusses personal finance Tuesdays on NPR's "Day to Day" program and online athttp://www.npr.org.

· By mail: Readers can write to her at The Washington Post, 1150 15th St. NW, Washington, D.C. 20071.

· By e-mail:singletarym@washpost.com.

Comments and questions are welcome, but because of the volume of mail, personal responses are not always possible. Please note that comments or questions may be used in a future column, with the writer's name, unless a specific request to do otherwise is indicated.