In the United States, the most common and most destructive natural disaster is flooding. In addition, 90% of all natural disasters involve some degree of flooding, and in the past five years, all 50 states have had a flood or flash flood within their borders.
Devastation is common because only one inch of floodwater can cause up to $25,000 worth of damage, according to the National Flood Insurance Program (NFIP), the government entity that provides flood insurance. In fact, flooding can happen anywhere, and it’s a year-round risk. Poor drainage, summer storms, melting snow, nearby construction, and broken water mains can all lead to damage and loss of property.
If your property is in a designated “high risk area” – as defined by flood maps available from the Federal Emergency Management Association (FEMA) – typically your lender will require flood insurance before it covers your mortgage and approve a real estate transaction. This is because high-risk areas face at least a one-in-four chance of flooding in a 30-year period – the typical length of a mortgage – or a 1% or greater risk annually.
Flood maps are continually updated, rezoned, and often affected by new development, infrastructure, or changing climate patterns in your area. From 2014 to 2018, the NFIP reported that over 40% of all insurance claims it received were from policyholders outside of high-risk areas. Fortunately, property owners in moderate- to low-risk zones are eligible for lower-cost policies, so it can really be worth the investment.
Your Standard Homeowners Policy Does NOT Cover Flood
The overwhelming majority of homeowners and business insurance policies do not cover any aspect of flood damage. Insurance policies have a list of “exclusions” stating damage caused by floods. A flood insurance policy is the only way to cover physical losses to your structure and belongings.
What’s Covered by Flood Insurance?
The NFIP offers both building coverage and contents coverage. You can buy just one type of policy or both. If you rent in a high-risk area, it’s likely that your landlord carries a policy on the structure, but you can still purchase contents coverage to protect your belongings.
Note that, since the limits are restricted under NFIP coverage, you might want to enhance or replace that policy with a flood policy sold on the private market, which may provide higher limits of coverage. Your insurance professional can help you with that.
Examples of what is protected by building coverage:
- The building structure and its foundation Electric and plumbing
- Heating, cooling, and water systems
- Built-in appliances, as well as refrigerators and cooking stoves
- Permanently installed flooring, paneling, wallboard, bookcases, and cabinets Window blinds
- Detached garages (other outbuildings require separate coverage) The cost of debris removal
Examples of items protected by content coverage:
- Personal belongings such as clothing, furniture, and electronic equipment Curtains
- Portable and window air conditioners Portable appliances
- Carpets not permanently installed Washer and dryer
- Food
- Original artwork or other valuables up to $2,500 Microwave ovens and portable dishwashers
*Note – NFIP policies does not cover contents in the basement or in a room that is below ground level.
What’s not covered by either policy:
- Avoidable moisture, mildew, or mold damage
- Currency, valuable papers, stock certificates or precious metals
- Outside property, such as landscaping, hardscape, wells, septic systems, pools, or hot tubs Living expenses required for temporary housing
- Lost wages due to business interruption or loss of use Most vehicles on the property
If any of the exclusions listed above cause concern, your insurance professional can identify other policies that would provide adequate protection for those items.
Understand What Constitutes a “Flood”
Simply having water in your basement does not necessarily count as a flood. Storm water or sewage backup is not flooding, nor is wind-driven rain that enters through windows, doors, the roof, or other openings in your building. These are perils that can be covered by a homeowners or business insurance policy and are not covered under flood insurance.
The general definition of a flood, according to the NFIP, is “a general and temporary condition of partial or complete inundation of two or more acres of normally dry land area or of two or more properties (at least one of which is your property) from:
- Overflow of inland or tidal waters
- Unusual and rapid accumulation or runoff of surface waters from any source
- Mudflow
- Collapse or subsidence of land along the shore of a lake or similar body of water as a result of erosion or undermining caused by waves or currents of water exceeding anticipated cyclical levels that result in a flood as defined above.”
The Danger of Relying on Federal Disaster assistance Instead of Flood Insurance
Why not simply rely on federal disaster assistance for a flood? That’s a risky proposition, because that type of aid is available only when the president formally issues a disaster declaration – which happens with less than 50% of flooding incidents. Plus, most disaster assistance comes in the form of a loan that must be repaid with interest.
Who Sells Flood Insurance?
Prior to 1968, flooding was considered an “uninsurable” risk, and private insurance was virtually unavailable. For this reason, Congress passed the National Flood Insurance Act of 1968, which created the NFIP to make it possible for property owners in participating communities to purchase flood insurance.
The NFIP provides flood insurance coverage only in “participating” communities that have adopted and enforce floodplain management practices. A homeowner in one of these communities can also purchase excess flood insurance from a private insurer but must have an NFIP policy first. Homeowners and businesses that do not reside within a participating NFIP policy can still secure private flood insurance. Your insurance professional can help you choose the right type and amount of coverage.
Decide Before the Water Rises
There is a 30-day waiting period before NFIP insurance goes into effect. If you’re in a high-risk area, it’s almost certain you’ll be required to carry flood insurance, but even if you live elsewhere, it’s worth careful consideration.
Clyde Paul Insurance Agency can help you with the details, including the right deductible levels, coverage amounts, and whether you should carry building, content or both types of coverage. Also, we can help you decide if your claims should be based on replacement cost or actual cash value.
