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Do I need flood insurance?

You might consider purchasing flood insurance even if you don't live in a high-risk area for floods. Storms, inadequate drainage, melting snow, and hurricanes can all cause serious flooding. And if you're purchasing a home in a designated flood zone, your mortgage lender will require you to purchase flood insurance before granting you a mortgage.

Despite what you may think, your homeowners insurance policy doesn't cover damage from flooding. To complicate matters further, you can't simply buy flood insurance as an endorsement to your current policy. Instead, if you are eligible, you must purchase a separate flood insurance policy through an insurance company that participates in the National Flood Insurance Program (NFIP). A few insurance companies also offer excess flood insurance policies that can supplement NFIP coverage.

A flood insurance policy offers flood protection for both your home and its contents. You can purchase up to $250,000 worth of coverage for the building itself, and up to $100,000 worth of coverage for the contents. But don't view the policy as a catchall. Flood insurance offers some degree of protection for flood-related basement damage, but it doesn't cover all types of damage. It also doesn't cover events such as sewer backups unless they are directly related to a flood.

Currently, the average annual premium for the maximum $250,000 flood insurance for a residence and $100,000 for contents is a little over $395 (Source: FEMA, 2010.) However, the cost of flood insurance depends on many factors, including the type of occupancy (e.g., single family, nonresidential), the amount of coverage, the deductibles you choose, and the location, design, and age of the building. Your insurance company or representative can give you a quote that accurately reflects your circumstances.