The risk of a flood is real, and unfortunately, many property owners don’t think about the hazard of a flood until the water is creeping up to their front door.
The purpose of this article is to provide basic information on flood insurance so that our clients, community, and all consumers understand the risk of flood and are able to make a more informed decision on whether or not flood insurance is right for you.
What is Considered a Flood in the Insurance Community?
The basic definition of a flood is as follows:
A general and temporary condition of partial or complete inundation of 2 or more acres of normally dry land area or of 2 or more properties (at least 1 of which is the policyholder’s property) from:
- Overflow of inland or tidal waters;
- Unusual and rapid accumulation or runoff of surface waters from any source;
- Mudflow; or
- 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.
To take this one step further, consider this scenario.
A large truck loses control driving through a residential neighborhood and smashes into a fire hydrant. The hydrant explodes and spills water throughout the street and enters several nearby homes. This IS considered a flood. No rain, no storm, no overflowing river or dam breach. By definition, any water from the ground that rises and enters land or buildings, no matter the source, is considered a flood.
Does My Homeowners’ or Commercial Building Insurance Policy Cover Flood?
The answer to this question is likely no. If you didn’t make a conscious decision to purchase flood insurance, then you probably don’t have this coverage. Most homeowners’ policies and commercial building policies specifically exclude flood. This must be purchased through the National Flood Insurance Program. There are some commercial insurance carriers that do offer endorsements to cover flood; but again, this is a conscious purchase decision you must make and it is not automatically included or in some cases even offered.
How Much Does Flood Insurance Cost?
Currently, the NFIP reports that the average national annual cost of flood insurance is about $700 per policy.
Of course, the cost depends on many factors this article has already addressed, most specifically location. Your rate is determined by which flood zone your building is located in. Our agency has a complete staff of professionals who can quickly determine your zone and other factors in order to calculate the rate.
Does My Auto Insurance Cover Flood?
Flood claims are covered under the comprehensive coverage section of your auto policy and are subject to your comprehensive deductible. Collision coverage covers damage to your automobile in the event you are at fault in an accident. The comprehensive coverage section of your auto policy covers things like hail damage, theft, fire, and yes…flood.
It is important to purchase comprehensive coverage before you think you will need it, because insurance companies will issue a moratorium (quit selling) in areas that are currently experiencing an increased risk of a natural disaster. For instance, an insurance carrier may cease to offer comprehensive coverage in Florida when a hurricane warning is in effect.
What Water Damage IS Covered Under My Homeowners or Commercial Property Insurance?
Let’s say water enters your home or building through the roof, windows, sewer backup, broken pipes, sprinkler leakage or from extreme torrential rains.
These scenarios usually fall under what is simply called water damage. Water damage is typically covered under homeowners and commercial property insurance; however, you should read your policy carefully to determine exactly what kind of water damage the insurer will pay for and if there is a monetary limitation to any of the above specific hazards. In general, water damage differs from flood damage in that it occurs before the water comes in contact with the ground. That could mean damage caused by something such as a severe rainstorm, pipes bursting, or a hailstorm that breaks your windows and allows water into your home.
If water damage extends to your yard, (e.g. a backyard pool leaks and ruins your lawn) that damage will most likely not be covered. You may also have trouble convincing an insurance company to cover damage caused by a maintenance problem that they believe should have been repaired – like a leaky roof that lets rain in. It is imperative that you understand exactly what damage your policy covers so you are aware of its limitations and the amount of risk you are taking before water damage occurs.
What is the National Flood Insurance Program (NFIP)?
Legislation to institute the NFIP was passed in 1968. Prior to 1950, homeowners had to purchase different policies to cover separate perils. It wasn’t until later in the 50’s that the Homeowners policy was formed to allow homeowners to purchase an “all risk” policy. The peril of flood was removed due to the frequency and costs associated with this particular peril and the policy premiums charged could not support the claims cost. Thus, the NFIP was born.
What is FEMA?
The Federal Emergency Management Agency (FEMA) was created in 1978 and later implemented on April 1, 1979. The primary purpose of FEMA is to coordinate recovery efforts and respond to any disaster that occurs within the United States whether natural or man-made. Following the attacks of September 11, 2001, Congress created the Department of Homeland Security. In March, 2003 FEMA was absorbed into this new agency. FEMA has several responsibilities, but as it pertains to this article we will focus on its role pertaining to flood disasters and the National Flood Insurance Program (NFIP). Although they don’t set flood insurance rates, FEMA does play a significant role in managing the NFIP, specifically:
- Hazard identification and mapping, in which engineering studies are conducted and flood maps are prepared to delineate areas that are predicted to be subject to flooding under certain conditions.
- Floodplain management criteria, which establish the minimum requirements for communities to adopt and apply to development within mapped flood hazard areas; and
- Flood insurance, which provides financial protection for property owners to cover flood-related damage and contents.
Am I in a Flood Zone?
The answer to this question is most likely yes. FEMA has prepared floodplain maps and developed flood hazard data for most communities in the country. Chances are you are in a Flood Zone. It is just a matter of which one.
The maps and data are used for several purposes:
Communities, States and Federal agencies use them as the basis for the regulating new flood prone construction, insurance agents use them when rating flood insurance policies, and lenders and federal agencies use them to determine when flood insurance must be purchased as a condition of extending a loan or financial assistance.
What Claims Does Flood Insurance Actually Cover?
There are two coverage items within the NFIP policy.
- Your actual home (building property) up to $250,000.
(If you need higher limits, you may consider Excess Flood coverage offered by private companies.)
- Your personal property up to $100,000.
You can purchase one or both of these coverages.
NFIP’s building property policy covers the cost to rebuild or the actual value of your home, whichever is less. Items covered under this policy include:
- Your home and its foundation
- Electrical and plumbing systems
- HVAC equipment including air conditioners, furnaces and water heaters
- Kitchen appliances, including your refrigerator, stove and built-in appliances such as your dishwasher
- Permanently installed carpeting over an unfinished floor
- Permanently installed wallboard, paneling, bookcases and cabinets
- Window blinds
- Detached garages (limited to 10% of the coverage limit on your policy)
- Debris removal
The NFIP policy that covers your personal property will provide coverage for items like:
- Clothing, furniture, and electronic equipment
- Window A/C units
- Portable microwaves and dishwashers
- Carpets not covered by your building policy
- Washers &dryers
- Your freezer and frozen food
- Up to $2,500 in valuables, such as art and furs
Note: Personal property claims are paid based on actual cash value which considers age and depreciation — not what you paid for them.
What Claims are Excluded on Flood Insurance?
If it belongs in a safe or bank, it is not covered:
Precious metals, stock certificates, bearer bonds, and cash.
Other items not covered:
Trees, plants, wells, septic systems, walkways, decks, patios, fences, hot tubs, swimming pools, boat houses, retaining walls, storm shelters, temporary housing and other living expenses, loss of income, automobiles, post-flood mold damage, and sewer backups.
Disclaimer: While every effort has been made to ensure the accuracy of this article, it is not intended to be exhaustive or provide advice specific to your individual situation. Each risk will differ and should be discussed in depth with an expert or insurance professional. For specific technical or professional advice on the information provided and related topics, please contact the author Richard Healy. firstname.lastname@example.org | 901.507.0616
We understand your property is an emotional as well as financial investment. If anything disastrous should happen, you’d want to rebuild your home as it was before and also recover damaged personal items, with the same quality, character and class. Our agency has a complete staff of professionals who can quickly determine your flood insurance rate.