NEW YORK (MainStreet) – In the wake of Hurricane Irene, it’s a safe bet that millions of homeowners are thinking for the first time about flood insurance, and perhaps questioning the wisdom of owning property near oceans, rivers and streams.

Flood insurance obviously makes sense for beach houses in hurricane-prone areas like North Carolina, but perhaps unexpectedly, the heaviest damage from Irene hit parts of New York and New England that are far from the ocean, as rain turned rivers and small streams into torrents. News reports say only a tiny fraction of inland homeowners carry flood insurance.

Clearly, more of them should. The standard homeowner’s policy covers damage from hurricane-borne winds but not from flooding. While a few private insurers offer flood coverage, the main source is the federal government’s National Flood Insurance Program, which provides details on its website. The site has an interactive feature for assessing a property’s flood risk and estimating premiums, and it provides links to local agents who can produce quotes.

The average policy costs $600 a year, but the price can vary widely depending on the property’s location, the maximum value of the coverage, whether it includes the building or just contents, and whether the basement is covered. It can cost thousands to insure a beach house in a vulnerable area.

Note that the NFIP is set to expire Sept. 30. In the past, Congress has always stepped in with extensions. The current holdup is a debate on whether premiums should rise, as the program is under-funded. So, if you do need flood coverage, it could pay to get going on it. Don’t wait until the next hurricane threatens, because new policies don’t take effect until 30 days from the purchase date.

As with homeowner’s insurance, it’s not necessary to get coverage equal to your property’s value, as a portion of the value is in the land, which presumably will survive a catastrophe. Annual premiums are cheaper if you choose a higher deductible, the value of damage you pay for yourself before the policy takes over. A typical option would be a $5,000 deductible versus $1,000.

Before taking out a policy, see what your current homeowner’s policy covers, and ask your insurer if any flood-related coverage can be added.  Consider increasing the deductible on your homeowner’s policy to reduce the premium, thus offsetting some of the cost of a new flood policy. A homeowner’s policy might have different deductibles for different types of damage.

Hanging over this issue is the question of whether flood insurance will be available in the future, and at what cost. The smart money says costs will rise, because the federal government will be less inclined to continue subsidizing flood coverage.

So the risks and costs are worth considering if you’re thinking of buying a property in a flood-prone area. Properties on the water often sell for a premium, as people like the easy access and views. But in a hurricane-prone coastal area it can cost nearly $6,000 a year for a policy with $250,000 of coverage on the building, $100,000 for contents.

At today’s mortgage rates, you could borrow about $100,000 for $6,000 a year. So you could get more house inland for the same annual cost, or get the same house for less. Of course, an inland home would probably be cheaper to begin with than an identical home on the beach.

Many people feel that water access and views are worth the extra expense. But if the property is one of those that is set back from the waterfront but still susceptible to flooding, it may not be worth shouldering the extra cost of insurance and the risk of losing your stuff.

Did your home get damaged by Hurricane Irene? Check out MainStreet's 7 Tips to File a Post-Irene Insurance Claim!

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