We’ve all heard of the saying, “precaution is better than cure.” It’s simple enough, but sometimes, finding the right course of action might be more complicated. Let’s take flood insurance as an example. Many homeowner insurance policies do not cover damages caused by flood, which in case of an accident can cost homeowners thousands of dollars.
Most people believe if their house is far enough from the coastlines or seas, they don’t need flood insurance. But that’s simply wrong! As a result of climate change, extreme weather is becoming more common and floods have impacted regions beyond the coastline, where people never would have imagined.
That’s why we always recommend preparing for the worst and hoping for the best. While homeowners in high-risk areas know the importance of flood insurance, the benefits of insurance might be a little unknown for those located in moderate- to low-risk areas. So, let’s see what flood insurance is and what it covers.
What Is Flood Insurance?
Flood insurance is a type of property coverage that protects your property and belongings from specific kinds of water damage. According to the National Flood Insurance Program or NFIP (the federal program created by the Congress of the United States in 1968), flood is defined as:
“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).”
Flood insurance covers several possible scenarios, including:
- Overflowing rivers, lakes, or bays
- A hurricane storm surge
- A heavy downpour that does not drain as fast as it accumulates
- A mudflow
Why Doesn’t Homeowners Insurance Include Flood Damage?
While some homeowner insurance policies cover water damages, they don’t often cover flood damage. The reason is simple. If homeowners insurance would have to include the flood damage, insurance agencies wouldn’t be able to afford the actual flood damage claims.
All surveys indicate that flooding is the most common and most costly natural disaster facing families and businesses across the country.
What Does Flood Insurance Cover?
The National Flood Insurance Program recognizes two types of flood insurance: building and contents.
Building coverage is insurance for your building and house structure, similar to a homeowners policy. The building coverage includes damages such as
- Electrical infrastructure and plumbing systems
- Water heaters
- Furnaces and AC units
- Foundation walls
- Built-in appliances and cabinets
- Permanently installed carpeting
- Detached parts of the building such as garages
- Fuel and well water tanks
- The NFIP offers building coverage up to $250,000.
The content coverage is insurance for your belongings, similar to personal property coverage, and includes damages to
- Personal belongings, such as furniture, clothing, and electronics
- Jewelry, artworks, and collectibles (with a maximum value of $2,500)
- Built-in appliances, such as refrigerators, dishwashers, stoves, Washers, dryers, and microwaves.
- Portable air conditioners.
The standard flood insurance policy pays for the replacement cost of damages based on the Actual Cash Value (ACV) up to the policy limit. The Actual Cash Value indicates that your payout is limited to the worth of your belongings at the time of the flood.
For instance, if floodwaters destroy your 20-year-old refrigerator, your flood insurance policy only pays enough to purchase a refrigerator with the same characteristics, age, and quality; it doesn’t pay you to buy a brand-new refrigerator.
The NFIP offers building coverage up to $250,000, and contents coverage up to $100,000.
What Is Not Included in Flood Insurance?
To save yourself the headache and confusion of arguing with insurance inspectors, it’s important to know what is not covered by flood insurance. Although depending on the specific policies, there might be a few exceptions, here are a few examples of property damages that will be covered by the flood insurance policy:
- Costs of temporary housing and living expenses due to flood damage (when the building is under reconstruction or not occupiable in case of severe damages)
- Property outside of an insured building e.g., wells, septic systems, landscaping, decks and patios, seawalls, fences, hot tubs, and swimming pools
- Financial losses caused by business interruption
- Currency, precious metals, valuable documents, and stock certificates
- Cars and self-propelled vehicles (although your auto insurance may offer some protection for your car if you have comprehensive coverage)
- Belongings that were damaged in the basement
- Moisture or mold/mildew damage that could’ve been removed by the owner
Keep in mind that your policy is limited to spaces above the ground floor and it doesn’t cover (only with rare and limited exceptions) below-ground rooms like crawl spaces and basements, and things you keep there. However, certain items such as the central heating equipment and the furnace, and washers and dryers are covered under the building or personal contents coverage.
Do You Need Flood Insurance?
Per federal regulation, if your home is located in a high-risk flood area and you have a mortgage from a federally regulated or insured lender, your lender is legally obligated to ask you for flood insurance documents.
If your house is located in a moderate-to-low-risk area, providing these documents is usually not mandatory. However, it all depends on the lender. Even when they are not legally obligated to ask for flood insurance, FEMA regulations allow them to require you to purchase flood insurance at any time.
But keep in mind that even without a legal requirement, keeping your property and belonging safe is always a good idea. So, if you’re wondering whether you need flood insurance or not, ask yourself the following questions:
- Is your house located at the bottom of a big hill where rainfall could potentially threaten your property?
- Is your property protected against heavy rainfalls with special drains?
- Has your neighborhood and the immediate region experienced a flood before or expected to be flooded in the future due to climate change?
- Are other houses in your neighborhood covered by flood insurance?
- Do climate forecasts predict rising water or increased rainfall?
By answering these questions, you can decide whether you need flood insurance or not. And keep in mind that the flood insurance will not be effective until 30 days after signing. So, it’s better to think a few moves ahead and act now.
There you go, folks! Hopefully, now you have a clearer picture of the coverage details, exclusions, and limitations of a flood insurance policy and are able to make the right decision based on your situation.
Remember that the flood insurance cost is relatively minimal compared to the damage that can be caused even by an inch of water in a few minutes. So, as long as you read the documents carefully and choose the best insurance plan, you can think of it as a cost-effective investment.
At The Kind Insurance, our goal is to help give you peace of mind and protect the things that matter most to you, whether that’s your family, home, business, car, or else. We offer a wide range of personal and business insurance programs to guarantee your safety and comfort.
Get in touch with us today to learn more about our flood insurance program!