Low-Risk Areas, a High-Risk Insurance Decision

By Mary Ellen Slayter
Washington Post Staff Writer
Sunday, March 2, 2008

Many homeowners have the decision about flood insurance made for them. If their houses are in high-risk zones, their lenders require insurance. So they buy it.

But people with properties that the government deems relatively safe from flooding can also buy insurance, through the federal government's National Flood Insurance Program as well as from private insurers.

"You need to look at that as carefully as you look at your homeowners insurance," said Kimberly Lankford, author of "The Insurance Maze: How You Can Save Money on Insurance -- and Still Get the Coverage You Need."

How much -- if any -- flood insurance homeowners should buy is based on their assessment of the likelihood of a flood, their tolerance of risk, and the affordability of the premiums. Keep in mind that damages from flooding aren't covered by regular homeowners policies, nor do they kick in immediately. A federal policy requires a 30-day waiting period.

To determine the chance your house will flood, start by checking the flood maps. The Federal Emergency Management Agency is revising many of them and risk zones have shifted, including many in the District. "We're in a flurry to update all the flood maps," said Eugene Kinerney, spokesman for FEMA's mitigation division, which runs the federal flood insurance program.

A high-risk property is one deemed to have about 1 percent chance of flooding in any given year. But about a fourth of claims paid by the National Flood Insurance Program have been on policies in areas considered low-risk. Being outside high-risk boundaries "doesn't mean you're at no risk," Kinerney said. "Just lower."

That makes it your responsibility to figure out the likelihood of water damage. "Think about the history of your house," Lankford said. If it's a house you're considering buying or recently bought, "talk to neighbors."

In some cases, the geography is obvious, said Mike McCartin, an independent insurance agent in College Park. He lives high on a hill. "If my current house floods, you're going to need an ark."

In other cases, the risk isn't known yet. Large new housing developments can be particularly prone to surprises, Kinerney said. Any area that years ago was a farm but now has a townhouse development and a Wal-Mart has a lot of water running off, not percolating into a field, he said. In such areas, "you've got to look at storm-water management plans. That's what changing flood plains around here."

Try to be objective as you assess the risk to your home. "That's the biggest problem with selling flood insurance," said Brad Reeves, an independent insurance agent in Leonardtown, Md. "People don't think it could happen to them."

Under the National Flood Insurance Program, the federal government provides the insurance, but private insurance companies sell and service the policies. The government also sets the premiums, so there is no need to shop based on price.

If you use an agent for your other insurance policies and he offers flood insurance, stay with that person for simplicity's sake, Lankford said.

Ideally, stick with the same carrier, Reeves said, to avoid turf battles in the event of a claim. "Because if it's something that might cross the line, it's the other company's fault," he said.

How much coverage you need depends on the value of your property and how much it would cost to repair or replace it.

Reeves said he encourages his customers to insure up to 100 percent of the replacement cost of their homes. The exact amount will depend on the value of the house and the stuff in it. The latter is something homeowners will have to calculate themselves, although a common ballpark figure is about 50 percent of the value of the house, he said. "I don't profess to be able to appraise your household contents."

Other experts say full replacement coverage is overkill in most of the Washington area. "Around here, you don't really worry much about homes being washed away," Kinerney said.

In most cases here, "it's more damage as opposed to the house being completely gone," McCartin said.

Flood insurance for homeowners in high-risk zones can cost thousands of dollars annually, but for those outside known flood zones, the rate drops significantly, Kinerney said. A preferred-risk policy providing $250,000 in coverage for damage to a building and $100,000 for its contents costs about $325 year. FEMA's online tool ( http://www.floodsmart.gov/floodsmart/pages/riskassesment/findpropertyform.jsp) allows consumers to search maps to determine the risk for a particular property and estimate the annual premium for federal flood insurance.

"The key thing is not to assume that it's incredibly expensive," Lankford said.

However, as property owners in high-cost areas can quickly learn, the federal policies have limits, in what they will cover and for how much.

Damage in basements is limited under the federal policies, with an exception for certain types of equipment that is often placed below grade, such as heating and air-conditioning systems and electrical panels. Generally, finished basements and their contents aren't covered -- something to consider before setting up a media room down there.

A homeowner who isn't comfortable with those limits can buy "excess flood insurance" from private companies, such as Chubb and AIG.

Those policies usually work in tandem with the federal coverage. "If the replacement value of your house is $500,000, you would first buy the federal insurance, then you could buy an extra $250,000" in coverage from a private firm, Lankford said.

Private policies can cover more types of damage, including in finished basements. They can also have higher limits on certain valuables.