Understanding Flood Insurance
By David W. Crump
Flood Insurance protects your house & possessions from loss by rising water from the outside. Think about a river or creek overflowing into your home… a frightening thought. Homeowner’s and other property insurance specifically exclude this peril.
If you own a house in a known flood risk area (i.e., the 100-year floodplain) with a bank loan, your mortgage bank will normally require flood insurance. For most homeowners, handling this mortgage bank flood insurance requirement is all they focus on and they ignore their true flood hazard. Then when a major storm does come, they have inadequate flood insurance coverage often with too little coverage on their house (often only the home loan balance) and no contents protection.
Also, over 25% of flood damage happens each year to properties outside of a known flood risk area (100-year floodplain). Central Texas had a recent example of an “out-of-the-blue” rain event that caused very intense flooding well beyond the known flood risk areas. The so-called “Marble Falls Rain Bomb” in June 2007 damaged over 100 homes & business around the city of Marble Falls with a very sudden 19 inch rainfall. A “Preferred Risk Flood Insurance Policy,” available to homeowners beyond the 100-year floodplain, can protect your home and possessions at a very modest price.
My city of Austin is part of the Central Texas “Flash Flood Alley” and has a long history of major flooding along its creeks and the Colorado River. Dams located on Lake Travis and Lake Buchanan, built in the 1940’s, has helped control the very destructive flooding of the Colorado River. Today, the biggest risk is along the many creeks in our urban areas and the Colorado River south of Lady Bird Lake dam. Shoal, Bull and Walnut creeks in North Austin plus Onion and Williamson creeks in South Austin have considerable history of inundating adjacent areas.
Our neighboring Hill Country also has many creeks subject to flooding plus several major rivers that can rage with great torrents after heavy rain. The Llano and Pedernales Rivers both have had major flood events in recent years. The Llano River, surging into Lake LBJ has caused major flood damage along its normally calm waters on several occasions.
The hardest part of understand both your flood risk and flood insurance policies is the terminology. Most folks are confounded by its mix of insurance and engineering terms. Once you have a key to decipher the flood insurance nomenclature, things will make more sense. You also want to understand what your “Flood Zone” designation means. Finally, I have included an overview of the main components of a flood insurance policy.
Flood Insurance Terminology
- Flood EventBase Flood Elevation – This is the level at which there is a 1% chance of flooding in any given year. A building that is located on land below the “Base Flood Elevation” is inside the 100-year floodplain.
- Elevation Certificate – Clarifies the relative elevation of your house in relation to the know flood risk. This allows for more accurate rating of the flood insurance policy and may reduce your flood insurance rates.
- Flood Maps (“FIRM” – Flood Insurance Ratings Maps) – Created by FEMA’s (Federal Emergency Management Agency), these maps were created to determine which land areas are likely to be flooded. These maps are based on surveys of the elevation of land areas relative to known flood risks (creeks, rivers, lakes, etc.).
- Floodplain – Any normally dry land area that is susceptible to being inundated by water often because it is adjacent to a watercourse. The 100-year Floodplain is the land that would be inundated by a 100-year flood event.
- Flooding – Rising water from outside enters a structure. An example would be a house inundation from a flash flood. The flood peril also includes mudslide.
- Hundred Year Flood – An engineering term used to describe the relative flooding risk. A house that is located inside the Hundred Year Floodplain is considered to have a 1% chance of being flooded in any given year. Most mortgages require that a house that is located in a Hundred Year Flood risk area must be insured for flood.
- LOMA (Letter of Map Amendment) – Document used to establish that a building is not located in a Special Flood Hazard Area. A typical situation in which a LOMA would be important is when a part of a house lot is subject to flooding in a 100-year storm but the house itself has been built at a higher elevation.
- National Flood Insurance Program – This is the government agency that provides insurance for the flood peril in the United States. Insurance companies are licensed to sell flood insurance policies for this government agency. All financial backing, rules and contract terms are set by the National Flood Insurance Program which is part of FEMA.
- Special Flood Hazard Area – A geographic area that is prone to flooding. An example would be an area adjacent to a river that has an elevation low enough to be subject to flooding.
Flood Zone Designations
A – River / stream flood risk
AE – River / stream flood risk with mapped base flood elevations
AO – River / stream flood risk with shallow water depths (1-3 feet)
AH – River / stream flood risk with shallow water paths (flows of 1-3 feet)
V – Coastal or Storm Surge flood risk
VE – Coastal or Storm Surge flood risk with mapped base flood elevations
X – Not a Special Flood Risk Area (elevation above the 100-year floodplain)
Flood Insurance Overview
Building – Provides protection up to your limit for damage or destruction of your house or other dwelling from peril of flood including rising water and mudslide.
Contents – Provides protection for your clothes, appliances, furniture and other possessions at your residence from peril of flood including rising water and mudslide. Flood Insurance offers “Actual Cash Value” as the basis of settlement. Contents coverage is optional and has a separate deductible.
Secondary Structures (fences, sheds, etc.) – None (No coverage is extended to secondary structures from the standard flood policy. Coverage is only available for the main structure.)