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B&B Flood Insurance

December 17, 2006

by Kit Cassingham

Buying flood insurance for your home and bed and breakfast will save you money and heartache. Follow the guidelines of the National Flood Insurance Program (NFIP) and lower your need for FEMA assistance should the inevitable happen to you. Urge your community to participate in mitigation compensation flood insurance programs to help protect your community. Your coverage cost is somewhat guided by what the flood insurance rate map quotes, but you can do things to help lower that cost. Your agent and research can guide you to the best coverage for your location and situation.

Flood insurance was designed to provide an alternative for disaster assistance. As repair costs escalate, something needed to be done. Communities implementing sound floodplain management have helped reduce the damage caused by floods. And buildings that were constructed in compliance with the National Flood Insurance Program (NFIP) building standards experienced about 80% less damage than those not built in compliance. Further more, for every $3 paid into flood insurance programs, $1 in disaster assistance was saved.

Planning for the worst that can happen seems to be what buying insurance is all about. Few people really like thinking about "bad" things, but face it, life happens and bad is mixed in with the good. If your inn is in a flood-prone area you are more than likely required by your lender to have flood insurance. Federally backed loans require, by law, you have flood insurance, which is backed by the federal government. And if you have a federal grant, flood insurance coverage is required to qualify for future aid. But even if you aren't required to buy that coverage, it's good business to do so anyway because flash-floods can happen anywhere. Flood insurance is relatively inexpensive.

First, floods aren't covered by standard insurance -- home or business. Lack of flood insurance could wipe out your financial standing. Don't think that the federal government is going to take care of you in the event of a disaster. Even if the President declares your area as a national disaster zone, the money provided is most typically a loan to be repaid with interest. And all the while you are still paying your debt service.

Next, check to see if your community is involved in the NFIP so that you can learn if you are even eligible to buy flood insurance. There are separate limits for homeowners, renters, and non-residential property owners on available coverage. Don't wait until disaster is about to strike because there is often a 30-day wait period before the insurance is effective.

Then, learn what your flood insurance does and doesn't cover. It does, unlike your standard insurance policy, cover structural damage, your HVAC and water heater, clean up of flood debris, and floor surfaces (carpet, wood, tile, etc). Additional coverage is available for artwork, clothing, collectibles and furniture. As a business owner, you are most interested in General Property insurance; Dwelling and Residential Condominium Building Association coverage is also available. The average insurance premium in 2000 was $352/year, starting at $112/year.

Flood insurance compensates you for all covered losses, even if the President doesn't declare your flood a national disaster. Unlike getting FEMA (Federal Emergency Management Agency) assistance, your losses are paid in full -- there are no loans to repay, as in the various Federal disaster relief packages. And payment is available immediately, at least partial payment, so you can start recovering immediately.

Education is critical. Here are some additional flood facts from the FloodSmart facts website.

  • All 50 states have floods
  • An inch of water can cause damage to your property
  • Being in a low- or medium-risk area makes you eligible for a Preferred Risk Policy, keeping flood insurance costs low
  • Cars can be carried away easily in just two feet of water
  • Flash floods often bring walls of water, 10-20 feet isn't uncommon
  • Hurricanes, winter storms and snow melt are common causes of flooding
  • Most insurance coverage excludes flood damage
  • Most people live and work in flood areas
  • Natural runoff patterns are caused by new construction and development, raising flood risk

Some flood statistics from the FloodSmart page.

  • Roughly 25% of all claims paid by the NFIP are for policies in low- to medium-risk communities
  • When your community participates in the Community Rating System (CRS) , you can qualify for an insurance premium discount of up to 45%
  • Your property has a 26% chance of suffering flood damage during the course of a 30-year mortgage, compared to a 9% chance of suffering fire damage

When shopping for flood insurance, your agent will examine flood insurance rate maps to help determine what risk area you are in. I understand that's important, but I watched the city of Boulder change the flood lines regularly. Without moving an inch, I saw buildings move in and out of the flood zone, changing their need for flood insurance requirements. That made it difficult for me to have much faith in the wisdom of the people in charge.

National flood insurance, sometimes called FEMA flood insurance, is a smart insurance coverage to have. Get an flood insurance quote as you build or renovate your inn, and then continue to get flood insurance quotes annually to keep yourself properly covered. Almost as bad as being under insured is having excess flood insurance. FEMA officials and insurers stress the NFIP works best when more people participate. Participation lowers rates, increases the money pool to draw from for claims, and lessens the risk that claims will have to be paid from taxpayer funds.

Ideally, steps are taken early on to prevent flood damage and mitigate situations that can exacerbate floods. There are various approaches to this through mitigation compensation flood insurance, a program that is addressed by FEMA. Most of these programs are community based, but it sure makes sense for property owners to proactively develop a safer environment.

So, if your location is near the ocean, a river or a place where there are winter storms (rain or snow), flood insurance is a wise step for protecting your assets. The assets you have worked so hard to build. A small investment can protect a huge investment, if you act now.




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