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Don't let a lack of flood insurance sink your home

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Summer rainstorms have left thousands of Louisiana homes underwater and at least seven dead. Over 20,000 residents, including Governor John Edwards, have been evacuated as swiftly rising flood waters rushed into residential and business areas. At Governor Edwards' request, President Obama has approved a disaster declaration for the state.

As the displaced wait for the floodwater to recede and to go back home and assess the damage, many of them will have questions about what their home insurance covers, and what it doesn't.

It's not uncommon to find that half of homes affected by a flood don't have flood insurance. Perhaps those uncovered homeowners don't know such policies exist, think their standard home insurance provides it, can't afford it or don't believe their home will ever be in the path of a flood.

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But here's one simple fact every homeowner needs to know: A standard home insurance policy does not cover flood damage. While most policies include "multi-peril" coverage, flooding isn't one of those.

Here are a few more thing you should know about flood insurance:

Most people think they can't buy flood insurance immediately before, during or after a flood. But that's not true. You can buy coverage anytime. In most cases, it isn't in effect until a 30-day waiting period after the first premium payment is made.

But even the 30-day waiting period can be waived if a Flood Insurance Rate Map revision included your home in the past 13 months. If you buy flood insurance for a home in this situation, the waiting period is only one day.

You might think you can't buy flood insurance if your property has been flooded in the past, but that's not so. As long as your home is in a designated National Flood Insurance Program (NFIP) area, you're eligible to purchase flood insurance even after the property has been flooded in the past.

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And just because your home isn't in a designated high-flood-risk area doesn't mean you don't need flood insurance. More areas are susceptible to flooding than you think. In fact, nearly a quarter of all claims covered under the NFIP come from homes located outside a high-flood-risk area.

You don't have to enroll in a government program to buy flood insurance. Homeowners can buy flood insurance through their insurance agent or existing carriers. Flood insurance is backed by the federal government though the NFIP and the Federal Emergency Management Agency.

The average premium for policies purchased through the NFIP cost about $650 per year, but the actual cost for your home will depend on how much insurance you purchase, what it covers and the property's flood risk. Most policies can be bought with minimum coverage of $20,000 for the home and $8,000 for contents. The maximum coverage for losses due to flooding is $250,000 to the building and $100,000 for contents. Losses are covered based on actual cash value, not replacement value.

If you want more flood coverage, you can get it through private insurers. Ask your agent to look for companies in your state that can provide flood policies with higher coverage limits.

Ray Martin

View all articles by Ray Martin on CBS MoneyWatch»
Ray Martin has been a practicing financial advisor since 1986, providing financial guidance and advice to individuals. He has appeared regularly as a contributor on the CBS Early Show, CBS NewsPath, as a columnist on CBS and on NBC-TV's morning newscast TODAY. He has also appeared on the Oprah Winfrey Show and is the author of two books.

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