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Homeowners insurance reimburses you when your home or personal property are burglarized or damaged by a condition that’s covered in your policy. These conditions, also known as “perils”, include everything from fires to storm damage to certain kinds of water damage.
However, if the cause of water damage is flooding, a standard policy typically won’t cover the losses. In order to ensure you're covered for flood losses, you’ll need a flood damage rider or a separate flood insurance policy.
Certain types of water damage are covered by homeowners insurance as long as the damage was sudden and internal. Loss that results from wind-driven rain is also typically covered. Conversely, if the water flows or seeps in from the outdoors, your property may not be covered by a standard policy. A few exclusions you should expect to see in a vast majority of policies are ground seepage, water backup from sewage, overflow from a sump pump, and flooding.
Insurers may recommend endorsements to your existing policy for water backup or sump pump overflows, and some may offer flood insurance. Even though flooding is the nation’s most costly natural disaster, many people are without flood insurance, and there’s a few reasons for this:
Flood insurance policies are traditionally administered through the National Flood Insurance Program (NFIP), a FEMA-sanctioned agency that was established as a response to the costliness of flooding and the lack of availability in the way of private insurance companies. However, in recent years, the private flood insurance market has skyrocketed, as premiums for privately written policies rose to $589 million in 2017, up 57% from $376 million in 2016, according to the Insurance Information Institute.
NFIP policies are sold in one of two ways: either directly, through the NFIP’s Direct Servicing Agents (DSA), or private insurers through the agency’s Write Your Own (WYO) program. The breakdown is fairly simple, if you live in one of the NFIP’s 22,000 “participating communities”, you buy flood insurance through a DSA; if you’re not in a participating community, you buy WYOs through one of the 59 companies.
The NFIP only offers one type of policy and caps rebuild coverage at $250,000, which means high-value properties may either need excess flood insurance or a more specialized policy with higher limits.
In recent years, private insurers have become more comfortable and efficient with underwriting and predicting flood insurance risk, and that’s caused private flood insurance to take off. Flood coverage is typically offered in one of three ways by private insurers: as a rider to an existing home insurance policy, as excess flood insurance to increase coverage amounts for an existing NFIP or private flood insurance policy, or as a standalone flood insurance policy.
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The NFIP has three crucial components in flood protection: to provide flood insurance, to improve the management and vitality of flood-prone regions, and to determine the location and designate risk levels of areas prone to flooding. If you’re in one of the following three zones, you may want to look into flood insurance:
Zone A: High-risk areas that have at least a 1% chance of flooding annually. If you’re a homeowner with a federally regulated or insured lender and you live in a high-risk region, you’re required to buy flood insurance
Zone B: Moderate- to low-risk areas that have less chance of flooding (0.2%), but there is still a possibility of a flood. If you live in Zone B, your lender typically won’t require that you buy flood insurance, but the NFIP and private insurers will recommend you get a policy anyway. More than 20% of NFIP claims are filed in low- and moderate-risk areas, and around a third of claim payouts go to those regions, according to FEMA.
Zone C: Regions where flooding is improbable, but not impossible. The general criteria of Zone C is that a proper flood-hazard analysis on the region hasn’t been conducted, but it’s located in or near a 500-year floodplain, which means that a flood has a one in 500 chance of occurring in any given year.
Even if you don’t live in one of the three designated zones, you should still consider flood insurance, especially if you live in a state impacted by hurricanes. In fact, a staggering 55% of homes that were damaged by flood waters during Hurricane Harvey were outside of the 500-year floodplain.
Here are some other situations where you may want to look into flood insurance coverage:
Areas damaged or destroyed by wildfires are at a great risk for flooding since there’s no vegetation to absorb the flowing water.
Highly developed areas with new roads, seemingly endless parking lots, and few parks or natural habitats can actually act as canals for flood waters and make the damage worse, as the soil that would otherwise absorb the water is covered by pavement.
These are typically areas near the high-desert regions of the western U.S. that experience rapid snowmelt and subsequent water runoff.
If you are considering flood insurance, don’t wait until flood season to buy it, as there’s a 30-day waiting period before policies can take affect. If you’re on the fence about flood coverage for your home, talk to a licensed representative from Policygenius who can offer coverage recommendations based on your home’s location and build.
Here’s a rundown of what flood insurance covers:
Personal Property: Clothing, furniture, and electronic equipment, as long as they’re not stored in the basement.
Certain luxury property: Jewelry, artwork, and fine furs are typically covered up to $2,500 per item.
Appliances: Refrigerators (except the food inside), as well as built-in appliances like ovens, dishwashers, washers, and dryers.
Carpeting and window treatments: Permanently installed carpet and window decor like curtains or blinds.
Home essentials: Electrical and plumbing systems, water heaters, central air conditioners, and sump pumps.
Permanently installed cabinetry
Home foundation: Foundational walls, staircases, and flooring.
Other structures: You can use up to 10% of your rebuild limit to make repairs to detached garages or sheds on your property.
Debris removal and cleanup
Any personal property stored in a basement or crawl space generally won’t be covered by flood insurance. There’s also limitations and quirks to the coverages offered by traditional NFIP policies. Structural coverage, for instance, is capped at $250,000, and personal property coverage maxes out at $100,000. You also need to pay separate deductibles if two separate coverages incur a loss, so if your floors and stuff are damaged in a single flood, that’s potentially two $1,000 deductibles you’ll have to pay on a single claim.
The other component that NFIP-backed flood insurance policies won’t cover is your additional living expenses (ALE) if you’re forced to live away from your flooded home for some time. Typically offered in standard homeowners insurance policies, ALE reimburses you for temporary living costs if your home is unlivable.
If you suspect that you’ll need more coverage, there are several private insurers on the market who offer policies with higher coverage limits and components such as ALE.
The average flood insurance policy cost about $700 in 2016, according to FEMA, and the average claim payout was around $30,000. Flood insurance rates vary by state and insurer, and a number of other factors, including:
Homeowners in areas at higher risk of flood damage generally will pay more in premiums than homeowners located outside of high-frequency flood zones.
How much stuff you own
Like homeowners insurance, the more stuff you own and need covered, the higher your monthly premiums will be.
Type of property
Cost is also determined based on how you use the property. If the home is your primary residence, rates will generally be lower since rebuild coverage is capped at $250,000. Meanwhile, if you own a multi-family or commercial property, you’ll be paying more for the increased coverage limits ($500,000) allowed for those property types.
Policygenius’ editorial content is not written by an insurance agent. It’s intended for informational purposes and should not be considered legal or financial advice. Consult a professional to learn what financial products are right for you.
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