Understanding Flood Insurance and Homeowners Policies
While most homeowners insurance policies provide coverage for certain types of water damage, standard policies specifically exclude damage caused by flooding. For example, your policy should cover you if your home experiences sudden and accidental water damage, such as from a burst pipe. However, water damage resulting from surface water entering your home will not be covered.
What is Considered a Flood?
A flood is defined as an overflow of water on land that is typically dry. For insurance purposes, flooding on just one property is not considered a covered flood. Flooding must affect two or more properties or cover two or more acres. The water must result from the rapid accumulation of surface water, overflowing tidal or inland waters, or mudflow.
Is Flood Insurance Necessary?
Every homeowner can purchase flood insurance, no matter where they live. Having flood insurance can provide peace of mind.
If you reside in a high-risk flood zone, your mortgage lender will require you to have a flood insurance policy. To determine the flood risk of your home, or one you are considering buying, you can visit the FEMA Flood Map Service Center. By entering your property's address, you can find out if the home is in a high-risk, moderate-risk, or low-risk flood area.
What Flood Insurance Covers
Flood insurance covers water damage to your home and belongings caused by flooding. There are two types of coverage: building coverage and personal contents coverage.
Building Property Coverage: This protects your home, its foundation, plumbing, electrical systems, HVAC system, carpets, wood paneling, and detached garages.
Personal Contents Coverage: This covers your furniture, electronics, clothing, appliances, and certain valuables.
For homes with basements, coverage is limited. Items not covered in the basement include window treatments, carpeting, bookcases, and paneling. Drywall may or may not be covered depending on its depth below ground level. A flood policy typically won't cover most belongings kept in a basement.
Where to Purchase Flood Insurance
Flood insurance policies are available through any insurance agent that sells homeowners insurance. You may have two options for obtaining a policy. The Federal Emergency Management Agency (FEMA) administers the National Flood Insurance Program (NFIP). NFIP policies are underwritten by the federal government and are available in all 50 states. Alternatively, you can purchase flood insurance through a private insurance company, which may offer a standalone policy, an excess flood policy, or a flood endorsement to your homeowners policy.
NFIP Flood Policy
The NFIP offers two types of flood insurance coverage: up to $250,000 for building coverage and up to $100,000 for building contents. Each type of coverage is purchased separately and has its own deductible. Additionally, obtaining an NFIP flood insurance policy requires an elevation certificate for the property, and there is a 30-day waiting period from the time you apply for coverage.
The building is covered for replacement cost, while your contents are covered for actual cash value. NFIP policies do not provide loss-of-use coverage or loss avoidance coverage (such as the cost of sandbags).
Private Insurance Policy
A flood policy from a private insurance company can cover your home for up to $500,000 or more. These policies typically do not require an elevation certificate and have only a 15-day waiting period.
A private insurance policy can cover both your home and its contents at replacement cost. They also include loss-of-use coverage and loss avoidance coverage.
NFIP vs. Private Insurance
NFIP cannot cancel a policy if a home is at high risk of flood damage. They offer standardized coverage and deductibles. Premiums for NFIP policies are generally reasonable, though they may be expensive in high-risk areas.
Private insurance companies provide more building coverage than NFIP, benefiting those with higher-valued homes. They also offer more comprehensive coverage than NFIP, especially regarding personal belongings. However, a private insurance company may cancel flood insurance coverage upon renewal and may have high deductibles. Unlike NFIP, they may not offer policies in high-risk areas.
Conclusion
The insurance agency handling your homeowners policy is the best place to start if you need or want a flood policy. They can answer any questions about coverage and optional coverages. While all agencies can offer you a quote for an NFIP policy, not all insurance agents work with private insurance companies that offer flood policies.
People in high-risk flood areas are most in need of this coverage. However, nearly any area in the country can experience flooding, so it's something every homeowner should consider.
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