40
Unit 1 The World of Insurance
individuals from loss by providing flood insurance, reduce future
floodplain damage by managing floodplains, and cut costs to the
federal government for disaster assistance and flood control. The
NFIP exists because private insurers are unable to provide affordable
flood insurance. This is largely because floods cause such significant
damage.
The Federal Emergency Management Administration (FEMA)
runs the NFIP. The agency contracts with private insurers that offer
the protection. Flood insurance is only available in communities
that join NFIP and take measures to manage flood risks. Check out
FEMA’s Community Status Book on the web to find out if your area
participates in NFIP.
Homeowner’s Liability Protection
Homeowner’s liability insurance protects the policyholder from
claims or lawsuits. If someone gets hurt on the property, this policy
will protect the homeowner from the financial consequences of a
lawsuit. If a covered family member causes injury to someone not on
the property, this insurance covers that incident, too. Homeowner’s
liability coverage also pays medical costs for someone who gets hurt
on the property, regardless of who is at fault.
Most policies come with a standard $100,000 worth of liability
protection. For homeowners who want protection beyond this amount,
they can purchase an umbrella policy. An umbrella policy is like a
safety net. Its protection kicks in when the homeowner’s insurance
reaches its coverage limits. Umbrella insurance is covered in more
detail in Chapter 4.
How Much Coverage Is Enough?
It is important to know the value of the home and its structures, as
well as the value of all personal items. If the house is worth $100,000 in
today’s market, is $100,000 worth of insurance enough? Probably not.
This is because the cost to rebuild the house will likely rise over time.
In addition, the amount does not account for personal property. Some
experts recommend insuring a home for at least 125% of its value.
History of
Insurance
Hmsgdd‘qkx1/sgbdmstqx+
the US experienced
severe river flooding.
The federal government
hmsdqudmdcvhsgoqnidbsr+
such as building levees
and dams, to control
damages caused by
flooding. Yet despite
spending billions of dollars
nmsgdrdoqnidbsr+eknnc
loss continued to worsen.
Dudmst‘kkx+sgdM‘shnm‘k
Flood Insurance Act of
1968 created the NFIP.
www.m.g-wlearning.com
www.g-wlearning.com
Real World Case
Jacob’s cousin Ellie was badly injured in a boating
accident last year. After weeks in the hospital and
months of rehabilitation, Ellie fully recovered. However,
she had hundreds of thousands of dollars in medical
bills. A family friend was driving the boat at the time
of the accident, and his homeowner’s insurance was responsible for
covering the costs of Ellie’s care.