You're already annoyed at all the insurance that your mortgage lender says you have to pay for when taking out a mortgage. Your lender will require that you pay for a homeowners insurance policy and title insurance. Depending on the size of your down payment, you might have to pay for private mortgage insurance, too.

flood insuranceThe last thing you want, then, is to spend money on one more insurance policy.

But paying for flood insurance might save you thousands of dollars in future water damage.

Brett Ringelheim, a real estate agent with New York's Nest Seekers International, saw just how important flood insurance was in 2012, when Hurricane Sandy hit New York City and its suburbs. This powerful storm flooded homes across the metropolitan area. Too many homeowners here lacked flood insurance, Ringelheim said. They then faced thousands of dollars’ worth of damages that they had to cover on their own.

"You might be paying for flood insurance for 20 years and never have a flood in your neighborhood," Ringelheim said. "Maybe you stop paying for it. Then a year later a storm like Sandy hits and your house is now completely flooded. That happened to so many people in our area. From my perspective? Flood insurance is worth it. Your house is a huge asset. Don't risk it."


Gambling with your home

Flood insurance, as its name suggests, provides you financial protection in case a flood damages your home. If you are taking out any type of mortgage to finance buying a home in a federally designed flood zone, you'll have no choice but to buy a policy. These zones represent parts of the country in which the risk of significant floods is especially high. Lenders won't loan you mortgage dollars in these areas if you don't first buy a flood insurance policy.

If you are buying a home in an area that isn't a designated flood zone, you have the choice: You can either buy a flood insurance policy or not.

You might be tempted to go with the "not" option. But that might be a bad decision, say flooding experts.

"The most important message is this: Everyone needs flood insurance," said Rafael Lemaitre, director of public affairs for FEMA. "We see far too often people who lose too much in floods. We need to do everything possible to encourage Americans to protect themselves financially from what is the most common and costly disaster we see in the United States, flooding."

Lemaitre said that even those who aren't buying in a high-flood zone should buy flood insurance. Flood damage is not covered under standard homeowner's insurance policies. If a flood does hit, homeowners without separate flood insurance might have to pay thousands of dollars in damages to restore their properties, Lemaitre said.

"There are many people who have much of their wealth built into their homes," he said. "The only way to financially protect yourself is by purchasing flood insurance."


Affordable protection

Lemaitre said that flood insurance is affordable protection for most homeowners. He said that the yearly cost of a policy ranges from $400 to $600 for homes located in areas of the country deemed to have low to moderate risks of flooding.

These policies will provide coverage for up to $250,000 in building damage and up to $100,000 in protection for the contents of homes, Lemaitre said.

"Past performance is not an indicator of what can happen in the future," he said. "If your house has never flooded in the past, that doesn't mean it won't in the future. You might hear from the neighbors that your neighborhood has never flooded. That doesn't mean it won't in the future."


What it covers. What it doesn’t

Flood insurance doesn't pay out for every form of water damage that can hit your home. The National Flood Insurance Program says that while this insurance does cover damages caused by floods, it doesn't provide payoffs for what it calls random water damage.

The difference sounds subtler than it actually is. The flood insurance program defines a flood as a temporary condition in which two or more acres of formerly dry land, or two or more properties, are flooded as a result of the unusual or rapid accumulation of runoff or surface waters.

Random water damage is when your water heater bursts and floods your basement. It's also when your dishwasher sends a river of water across your kitchen floor or when your basement sewer backs up. Flood insurance doesn't cover you from these events, though your standard homeowner's insurance policy might. Most insurance policies cover water damage that results from a sudden, unexpected event. Most won't if the water damage results from maintenance issues that you've ignored.

Byron Ellis, a certified financial planner with United Capital Financial Life Management in The Woodlands, Texas, said that once you purchase flood insurance you shouldn't just ignore it. Changes to the land around your home could actually lower your area's risk of a serious flood. If that happens, you might be able to qualify for a lower annual premium on your flood insurance, he said.

"Things are always changing. They could change for the better," Ellis said.

Published on August 30, 2016