Understanding the Basics of a Flood Insurance Policy

Your home insurance policy doesn’t cover water damage when it’s caused by a flood. In fact, it will likely have a specific exclusion for this type of damage. This means,  if you live in a designated flood zone, you’ll want to purchase a separate flood insurance policy. This can be done through the federal flood program or a private insurance company. This is a bit different from your car insurance which will pay to repair or replace your —assuming you have comprehensive coverage on your vehicle.

What is flood insurance?

Flood insurance, most commonly purchased separately from your home insurance policy, provides coverage for claims from water damage related to flooding. If your home or personal property is damaged by a flood, it’s your flood insurance policy that provides coverage to rebuild or repair your home. It can also pay you the actual cash value of your personal belongings if they are damaged in a flood.

What does a flood insurance policy cover?

Depending on where you purchase your flood  insurance policy, either from the National Flood Insurance Program (NFIP) or a private insurance carrier, you can expect your flood insurance to generally cover some or all of the following:

• Your home’s foundation and structure
• Garage and other detached structures
• Personal property, including furniture, clothing, and electronics (actual cash value)
• Built-in appliances, including refrigerators, dishwashers, and stoves
• Permanently installed carpeting and household fixtures
• Air conditioning unit and furnace
• Plumbing and electrical systems
• Up to $2,500 in valuables such as jewelry, memorabilia, art, and furs
• Debris removal

If you purchase your policy from the NFIP, it will offer up to $250,000 in coverage for your home’s structure (or dwelling) and up to $100,000 for your personal property. If your home has a higher replacement cost value, then you may need to seek coverage from a private flood insurer. In some cases, a private flood insurance policy can be purchased to supplement your NFIP policy, or you can purchase the entire coverage from a private carrier.

When you purchase a flood policy through the NFIP there is an important difference when compared to most home insurance policies. The home’s structure or dwelling coverage is covered on a replacement cost basis, but the personal property is insured for its actual cash value.

What does this mean?

It means that NFIP will typically only pay you the actual value of your covered personal belongings. For example, your sofa may cost $1,000 brand-new, however, at the time of the loss it was only worth $600, then the NFIP will only pay $600 toward the replacement of the sofa. This is one reason you may want to consider purchasing your flood insurance policy with a private insurer, they may cover your personal property at replacement cost.

A flood insurance policy doesn’t cover everything

All insurance policies have things they don’t cover, and flood insurance is o different. Regardless of where you buy your flood policy, from the NFIP or a private company, the following exclusions will likely apply:

• Damage from sewer backups or to your sump-pump
• Motor vehicles (car, ATV, motorcycles, watercraft, etc.)
• Floodwater damage leading to mold and termites
• Financial losses you might suffer from not being able to conduct your home-based business
• Stock certificates
• Cash and jewelry up to specified limits
• Swimming pools, outdoor hot tubs, and patios
• Landscaping

Do I have to buy flood insurance?

Flood insurance is not compulsory by regulation. However, as a condition of your mortgage, you may be required to purchase a flood policy.  The higher the flood risk the home is located in, the more likely your lender will make flood insurance a condition of your loan.

Here’s a consideration, FEMA estimates that an inch of water could cause up to $25,000 of damage to your home. So, even if you don’t live in a high-risk flood zone, heavy rain, melting snow, and severe coastal weather could cause flooding. Flooding that may not be covered by your standard home insurance. Additionally, 20% of flood claims come from low or medium-risk areas, meaning flood insurance may be a good idea for anyone with a home near a body of water.

Does renters insurance cover flood damage?

Renters’ insurance policies won’t cover damage resulting from an outside flood. To protect your personal property against flood damage, you’ll need a separate flood insurance policy. However, you’ll only need to cover your belongings on your flood policy and not the actual residence. It is your landlord’s responsibility to insure the structure you live in.

Even if you don’t live in a flood zone, heavy rain, melting snow, and severe coastal weather could cause flooding.

Does car insurance cover flood damage?

Yes, if you carry comprehensive coverage on the vehicle damaged from flooding. Comprehensive covers events out of your control, including flooding and severe weather. A deductible typically applies.

How much does a flood insurance policy cost?

Generally speaking, flood insurance policies are fairly reasonable. If you purchase from the NFIP the average cost is estimated at around $700 annually. However, like all forms of insurance, your rate is determined by the amount of risk and coverage. So,  if you live in a high-risk flood zone or an area prone to flooding, your premiums will be higher. In fact, premiums for private flood insurance companies will vary greatly based on location (proximately to water sources), elevation, and the coverage limits you require.

How to buy flood insurance

Flood insurance is easy to purchase. If you have an insurance agent give them a call and they can assist you with either a private policy or one through the NFIP. Sometimes you can call your insurance company directly, and they can assist you with an NFIP policy. Need more information? You can also request to quote flood insurance online with IronPoint Insurance Services, LLC, or give us a call at (877) 334-7646 to speak with a specialist.