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Flood insurance policy?


(Personal Finance » Insurance »)

Flood Insurance Policy

Natural disasters like earth quakes, storms and landslides keep occurring in different parts of the world causing great losses both in terms of human life and property.  Sometimes hazards like floods do not cause personal injuries or death, but cause huge financial loss due to damage to residential and commercial property.  Though steps can be taken by communities to reduce the risk of floods, people especially those livingin flood prone areas should also take necessary precautions to protect themselves from loss of property.  The best way to do this would be to buy a flood insurance policy.
Need for a Separate Flood Insurance Policy
People generally insure their homes by buying homeowner’s insurance policies.  Since this insuranceprotects them from different kinds of losses caused to thehouse, many are under the false impression that they are protected from flood losses too.  It is only after their home is damaged in a flood and the insurance company rejects their claim, they realize that they should have taken a separate flood insurance policy.
Flood Insurance Policy Coverage
*.‘Building only’ coverage
People who buy a flood insurance policy with ‘buildingonly’ coverage would be compensated for any damageto the structure of the building due to a flood.  Certain permanent fixtures tothe building like the electric and plumbing system, central air conditioning and heating are also covered.
*.‘Contents only’ coverage
A person may wish to protecthimself against losses caused to the contents of hishouse in case of flooding.  Hecan buy an insurance policy with ‘contents only’ coverage.  Items like jewelry and money however would not be covered.
Classification of areas for the purpose of flood insurance
Insurance policy rates depend on whether the property is located in a high risk zone or low to moderate risk zone.
*.High risk zone – Theseare the areas where floodingoccurs regularly.  People living in these areas are charged with high premium for a flood insurance policy as the chances of claims arising are very high.  Thesepolicies are called ‘standard flood insurance’ policies.
*.Moderate to low risk zone – The instances of flooding in these areas are few.  But people living here may still take a flood insurance policy as a precautionary measure.  It is very rare that the insurer faces claims and hence the premium charged is quite low.  These policies are ‘preferred risk policies’.
Why is a flood insurancepolicy generally expensive?
The business of insurance becomes profitable only whena large number of people buyinsurance policies and the number and amount of claims are few.  In case of flood insurance, it is mostly peoplewho live in flood prone areaswho buy a flood insurance policy.  This is called ‘adverse selection’. The number of claims is naturally large. Insurance companies have to pay large amounts ofmoney to settle claims.  They would suffer losses if they charged low premiums.  Henceprivate insurers have no option but to keep the premium rates high.
How to buy an online flood insurance policy?
A person buying a flood insurance policy has to do a lot of research to find out therates and terms of different insurers.  Though an insurance agent can supply this information, people find itvery convenient to gather information as well as purchase the flood insurancepolicy online.  There are insurance websites with various features like online insurance premium calculators.  When the person enters the required details, he would get information on the rates of different insurers.  He could compare them and buy the policy which offers the best terms.
Taking a flood insurance policy would be very beneficial to people living in flood prone areas as they would not suffer financially incase of property damage

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