Flood Insurance – Will Your Policy Work For You When You Need It?

People in flood prone areas depend on their flood insurance policies to give them peace of mind and protection if the big one comes and they get flooded.  But very few of these buyers of flood insurance know that there is no guarantee their policy will be renewable when it expires?  Flood insurance is made affordable by a program is sponsored by the federal government.  The laws that created the National Flood Insurance Program and that allow this program to exist are currently tangled  up in other bills and debates that leave some doubt as to whether or not we will have a National Flood Insurance Program after May of this year.

You may be asking yourself why the federal government is mixed up in an insurance program in the first place.  Well, flood insurance is a different creature in the insurance world because with flood insurance, only those that need it most (those who live in flood prone areas) are the only ones who will ever consider buying a policy.  And since homeowners who have no flood risk at all (those who live at the top of a hill) will never want to buy a flood insurance policy, the insurance companies selling flood insurance will always face an adverse selection process when they sell flood policies.  This adverse selection process makes the cost of flood insurance nearly unaffordable as there is no subsidy at all from the lower risk buyers.  So the federal government steps in with a subsidy and the NFIP.

The NFIP must be continually reauthorized by Congress periodically as its charter expires.  The most recent extension for the NFIP was passed at the on Dec 23, 2011 but this extension only authorizes the program through May 31, 2012.  Without a further authorization of the program, the NFIP will cease to function after that day.   Now this kind of congressional deadline is nothing new, in fact the current extension is the 15^th one since 2002.  In 2010 the NFIP was allowed to lapse four different times, creating 53 days in 2010 when you could neither purchase a new flood insurance policy nor renew an existing one.   And I’d bet that most of the homeowners who lost coverage during that time were at best only dimly aware of the new risks they were taking on the day their policies became invalid.

There are several reasons why the NFIP reauthorization is getting this band aid type treatment.  And most of these reasons are unrelated to the NFIP itself.  The debt limit issues that the government ran into in late 2011 led to this current short term extension instead of a multi-year solution.  And the bill to extend the NFIP charter into 2016 is unfortunately tangled up with a few political hot potato items such as tax rates and the Medicare payments to doctors debate. 

Remember that your homeowners policy will not cover flood losses.  This is also true with your businessowners policy for your business.  In order to be protected, you will need to purchase a flood insurance policy.  If you have already bought a flood insurance policy, then you should  keep a close eye on your mail or stay in touch with your agent to make sure that your policy remains in force after May 31^st.  At this point there is no certainty that you will be protected on June 1^st.

At Clinard Insurance Group, situated in beautiful Winston Salem, NC, we can help you with your flood insurance needs.  We can also help you save money on your auto insurance, your home insurance and your business insurance.  Give us a call, toll free, at 877-687-7557 or visit us on the web at www.ClinardInsurance.com.