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Flood insurance is homeowners' insurance which covers damages caused by flooding, ranging from the need for full replacement of a home to repairs such as replacing flooring and walls. This type of insurance is typically not included in a standard home insurance policy, and must be purchased at additional cost. People who live in flood-prone regions should certainly consider flood insurance, as it will allow them to recover more quickly from floods.
Flooding can cause a great deal of damage. Even if it does not destroy a home, it can fill a home with mud, silt, and other debris, and the moisture from the flooding may lead to rot, mold, mildew, and other problems. Recovery after a flood tends to be very expensive, as many items may need to be rebuilt or replaced, with the residents staying in temporary shelters while their home is made livable again. Flood insurance mitigates these costs, and it is especially valuable for people who do not have very much money, as these individuals could be forced to abandon their homes after a flood because they cannot afford to repair them.
When a flood insurance policy is established, the insurance company examines the home and its location to determine risk. Homes in floodplains, low lands, and regions prone to hurricanes and other severe storms are at increased risk of flooding, as are homes in arroyos and other dry valleys which could experience flash flooding. The cost of flood insurance varies, depending on the location of the home, with many nations being divided into “flood zones” by insurance companies to help them calculate risk.
Some insurance companies will not write flood insurance policies, because flood insurance tends to be prone to a phenomenon known as adverse selection: only people who are at risk of flooding will buy it. As a result, the insurance company does not have a large risk pool to draw on, making claims more expensive for the insurance company. If an insurance company does not offer flood insurance, it may be able to refer homeowners to another insurance company which will, or to a government plan which subsidizes flood insurance.
Some governments require people in flood-prone areas to get flood insurance, especially if they receive government assistance to help them recover after a flood. In the United States, the National Flood Insurance Program provides flood insurance across the country to people who may not be able to obtain it otherwise, and recipients of federal disaster funds after a flood must usually agree to purchase flood insurance as part of the terms of the funds.