El Nino warrants a fresh look at flood insurance

The vast majority of Americans don't buy flood insurance unless a mortgage lender forces them to do so. But if you're among that 86 percent who forgo this coverage, two words should make you revisit that decision: El Nino.

That's the name for a weather pattern that wreaks havoc with norms. The National Weather Service contends that 2016 is likely to deliver the most severe El Nino conditions in at least a generation. In areas where it's typically cold and wet, it's likely to be dry. But normally parched states such as California and Arizona are likely to be deluged with rain and snow.

That means homeowners who've never had to contemplate how they would cover losses from a "rising tide of water" may be in for a nasty surprise. Normal homeowner's insurance policies may cover water losses from broken pipes within your home. But if the water rushes in from outside, few homeowners realize -- until after they suffer a loss -- that their policies exclude compensation for this damage.

If you want to mitigate the chance of losing a fortune in a flood, you need a separate flood insurance policy. What does flood insurance cost, what does it cover and how do you determine whether you should buy it? Here are some answers.

What is flood insurance?

It's a one-peril property coverage created by the federal government in the 1960s to help defray the cost of damage from rising water. Losses can be triggered as the result of a hurricane, rainstorm, or broken dam, levy or public water main.

Rates are generally set based on topographical maps created and updated by the federal government. These maps are designed to handicap your chance of suffering a flood loss, but they're not infallible. About one in every five flood claims comes from homeowners outside of high-risk zones.

Moreover, the flood maps are updated infrequently and recent building developments increase flood risks by paving over terrain that would otherwise absorb water. Fires that denude hillsides also increase flood and mudslide risks. (Mudslides caused by flooding are also covered under flood policies but are excluded in normal homeowners' insurance.)

What does it cost?

That depends on where you live. If you are in a high-risk area, flood insurance can be prohibitively expensive. Unfortunately however, you'll be required to buy it to get a mortgage, said Tammy Chapa, flood insurance expert with Korsgaden International. Premiums in high-risk areas can range from $1,000 to $3,000 per year. And, of course, that's on top of the amount you pay for ordinary homeowner's coverage.

However, if you're in a lower-risk area, the coverage is cheap -- in the neighborhood of $100 to $500 per year. To get an estimate for your home, go to the government's FloodSmart site and click on "Understand your flood risk." The site's premium tool estimated that one house in Los Angeles, for example, could buy a flood policy for between $137 and $452 annually, depending on the deductible and the amount of coverage.

What does it cover?

Much like ordinary homeowner's coverage, it would pay to replace your structure if it were washed away. It would replace broken and damaged windows, doors, drywall, etc. And, assuming you buy contents coverage (which can be purchased separately), it would also pay to replace your waterlogged furniture, appliances and personal effects.

Know, however, that flood coverage is limited in several ways. First, the maximum amount you can buy is $250,000 for the home and $100,000 for its contents. Unlike ordinary home insurance, where you can opt to get "guaranteed replacement cost" coverage that will replace your furniture, appliances and clothing at current market prices, flood insurance covers "actual value." That's the cost of the item, minus depreciation, to reflect that what you had was used.

Ordinary homeowners' coverage will also pay for your temporary housing if you must abandon the home while it's damaged or being repaired. Flood insurance doesn't provide that coverage.

Moreover, flood coverage for basements and rooms that are below ground level has another set of limitations. Below-ground rooms can include those that are built, say, on a hillside, where one side is below ground level and the other side is above. These rules can be complex, however. To understand coverage limitations on this space, discuss your situation with a flood insurance agent.

How quickly could coverage go into effect?

You'll have a 30-day waiting period to get coverage after application. So, if you bought a policy today and were flooded tomorrow, you couldn't collect on a claim. However, if you bought coverage today and were flooded two months from now, you would be covered up to the limits of the policy.

Who should buy it (when they don't have to)?

Loretta Worters, a spokeswoman for the Insurance Information Institute, suggested that every homeowner at least get a quote. "Floods can happen really anywhere, and if you don't live in a flood-zone area, the coverage is very inexpensive," she said.

However, if the cost seems prohibitive, Chapa suggested that you handicap the chance of costly flooding by looking at the terrain and drainage surrounding your home. If your home is below street level and isn't adequately rimmed with drainage ditches, you may be at greater risk.

Realize that it's not just rainstorms than can cause a flood, she added. An aging infrastructure has led to water mains bursting in some cities and resulting in flood damage. If you live near a hillside, do your best to assess the chance of being affected by a mudslide, too.

"Look at where run-off would go and whether there are pipes or debris that would cause water to back up," said Chapa. "Be smart and think ahead."

Is there a way to make mandatory coverage more affordable?

If your mortgage lender requires flood insurance, you're likely to be in a flood zone where the cost of coverage can be expensive. But there are numerous ways to score a discount, said Chapa. Everything from proper venting to getting a geological survey can land you a cut rate that could shave as much as $800 annually.

Of course, accepting a higher deductible can save money also, but be sure that you don't set your deductible so high that you'd be economically devastated by a loss. A good flood insurance agent should be willing and able to work with you to find available discounts.