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Costly Misconception: Insurance Rates can Vary Greatly, but 'Everybody's in a Flood Zone'

'The difference is if you're in a preferred-risk zone, which everybody is calling a no-flood zone ... it just means you're less likely to flood. If you're in a high-risk zone, you're more likely to flood.'

flood area
(TNS) - Lots of flood insurance prices are being tossed around since high water overwhelmed tens of thousands of properties and their owners across south Louisiana.

The cost varies depending on location, but in low- to moderate-risk areas about $450 a year buys coverage for $250,000 worth of damage on a person’s primary residence and $100,000 worth of contents, said Terri Forsman, flood-risk coordinator for Louisiana Companies in Baton Rouge. The policies also carry two deductibles, $1,250 for the structure and $1,250 for contents.

"Everybody's in a flood zone. If it rains where you live, you're in a flood zone,” Forsman said. “The difference is if you're in a preferred-risk zone, which everybody is calling a no-flood zone ... it just means you're less likely to flood. If you're in a high-risk zone, you're more likely to flood.”

Flood insurance costs less for less valuable homes in preferred-risk areas. According to FloodSmart.gov, the annual premium is $324 for a home valued at $100,000 with $40,000 in contents.

Rates vary widely in the A and V zones, which are considered more likely to flood, Forsman said. The cost depends on a number of factors, such as the amount of coverage, the location and the elevation of the home above the base flood level.

Forsman said there’s lots of confusion about flood insurance.

Some of that comes from the fact that mortgage companies don’t require home buyers to purchase flood insurance on properties in a preferred-risk zone. Some people think that means their homes won’t flood.

Wells Fargo spokeswoman Crystal Drake said the federal Flood Disaster Protection Act requires flood insurance be in place for mortgaged properties in a Special Flood Hazard Area. Lenders have to conduct flood zone determinations during the loan application process and periodically afterward to make sure homes in a Special Flood Hazard Area are covered by flood insurance.

In high-risk areas, there is at least a 1-in-4 chance of flooding during a 30-year mortgage, according to the Federal Emergency Management Agency.

Roughly half of East Baton Rouge Parish lies in a flood hazard area, although large swaths of those properties have not been developed, said Warren Kron, city-parish GIS manager. Unfortunately, a lot of the areas considered less likely to flood, like Sherwood Forest, fell victim to high water this time around.

FEMA says more than 20 percent of flood insurance claims come from homes outside a flood hazard area.

Only a fraction of the Baton Rouge area’s residents carry flood insurance, although Insurance Commissioner Jim Donelon said he would not be surprised to see those numbers increase in the coming months.

Jeff Albright, chief executive officer of the Independent Insurance Agents & Brokers of Louisiana, said he spoke to three agents Wednesday who have handled a bunch of flood claims.

All have sold lots of flood policies to people who almost flooded, but none to people who did flood. The agents told Albright that people who flooded are too busy trying to get their lives back together to think about buying flood insurance.

"Until they get their homes repaired, they are not going to worry about flood insurance," Albright said.

Donelon said the average cost for flood insurance statewide and in the Baton Rouge metro area is about $750, or roughly $60 a month, an amount that compares favorably to the loan payment likely facing homeowners who didn't have flood coverage.

Donelon said he expects most of the money to rebuild homes will come from the U.S. Small Business Administration.

"They’ll be very low interest loans, probably 2 percent, and long-term, probably 30 years," Donelon said. "But what that does to these people is it strips out all of the equity in their biggest asset in their family."

Flood victims will be left with a $45,000 second mortgage, he said. They'll also be left with little or no equity in their homes or with homes that are worth less than what they owe on mortgages.

The monthly payment on a 30-year loan at 2 percent is about $166, before any fees.

In addition, flood victims may not realize that their flood insurance policy's contents coverage won't pay for new replacement goods, unless the flood-damaged items were new.

The contents are replaced at their "actual cash value," Forsman said. Adjusters follow depreciation schedules.

Donelon said a flat-screen TV is worse than a new car, which loses $10,000 in value when the buyer drives it off the lot. "Sofas are comparable to flat-screens," he said.

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©2016 The Advocate, Baton Rouge, La.

Visit The Advocate, Baton Rouge, La. at www.theadvocate.com

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