Flood Insurance 101

Unfortunately, flooding is the most common type of natural disaster that occurs in the United States and, although some areas are ranked as low risk, floods can happen anywhere.

Ensuring you have proper coverage in case of a flood is an essential component of protecting your home and your assets. Under most standard homeowners, renters, and commercial property insurance policies, there is no coverage for flooding. Instead, to cover flood risks, flood insurance is available from the National Flood Insurance Program (NFIP) or from a few private insurers.

According to the Insurance Information Institute, the NFIP “was designed to stem the rising cost of taxpayer funded relief for flood victims and the increasing amount of damage caused by floods…[and] has three components: to provide flood insurance, floodplain management and flood hazard mapping.” The NFIP’s policies are available across the country and legislation surrounding the program lays out required and volunteer participation, dependent upon risk, as well as details on how the program functions.

The NFIP, which is administered by FEMA, has a direct policy program, which is funded by the federal government that allows insurers to write flood policies for clients without assuming high risk losses. There are some companies who offer these policies without federal backing. Each company has standard minimum requirements they must adhere to for policies they write, but the NFIP and each private insurer may provide different coverage with different limitations.

The Insurance Information Institute states that typical flood insurance covers “direct physical losses by flood and losses resulting from flood-related erosion caused by heavy or prolonged rain, coastal storm surge, snow melt, blocked storm drainage systems, levee dam failure or other similar causes.” They clarify that the

definition of a flood is meant to include only instances in which resulting waters “cover at least two acres or affect two [or more] properties.” The typical plan will cover homes on a replacement cost basis and contents on an actual cash basis. Minimum coverage amounts are standardized, but additional coverage is available. In his article “Understanding the Fine Print of Flood Insurance,” AssuredPartners’ Jim Black, notes a few coverage stipulations typically included in a NFIP flood insurance policy:

  • The deductible applies separately to building and contents
  • No coverage is offered for damage to content/furnishings in basements or under an elevated floor
  • Content losses, and sometimes buildings as well, are settled on basis of Actual Cash Value, meaning values are rated including depreciation
  • Most valuables have coverage limits
  • Other structures aside from the main building are not covered (10% of building limit may be applied to detached garage)
  • No coverage is offered for outdoor property, underground property, pools/hot tubs, patios, decks, retaining walls, etc.

Understanding flood risk and coverage can be complicated but being informed about how these policies work could save you some serious money and hassle if your home or belongings are damaged in a flood. Contact our team for further guidance on your flood risk and asset protection. 


Sources:

“Spotlight on: Flood Insurance”, Insurance Information Institute

“Understanding the Fine Print of Flood Insurance”, By Jim Black, AssuredPartners