Flood insurance makes sense once you realize that floods are the #1 natural disaster in the US. Most people focus on the flooding caused by … the latest hurricane. While hurricanes dominate the news, there are lots of other reasons why your home might get flooded. We’ll review these as most homeowners focus on saving money versus understanding their insurance options (read: Do You Really Need Flood Insurance?).
This article focuses on flood insurance starting with an overview of the National Flood Insurance Program (NFIP) and what it covers. It’s important to understand why this insurance might be a good investment to protect your home.When we bought our condo two blocks from the NH coastline, we learned our condo didn’t require flood insurance and didn’t buy it. After Hurricane Sandy’s extensive damage to New Jersey and New York, we decided it was time knowing if Sandy had continued north, we could easily have been inundated in New Hampshire.
National Flood Insurance Program (NFIP)
In high risk areas (insurance required if mortgages from federally regulated or insured lenders), there is a 25% chance of flooding during a 30 year period (mortgage). You might think your home won’t get flooded if you don’t live along the coast or near a river. In fact, flooding is the #1 natural disaster in the US. Flooding can happen almost anywhere — yes, hurricanes and tropical storms but also heavy rains and spring thaw, flash floods and mud flows, dams and levees can break and new development alters water runoff patterns causing flooding where it’s never happened.
That’s why Congress created the National Flood Insurance Program (NFIP) in 1968, to insure property owners could buy flood insurance as most homeowner policies DO NOT cover flooding. NFIP insurance is available to homeowners, renters, and business owners if their community participates in the NFIP, as these communities agree to adopt and enforce ordinances that meet or exceed FEMA requirements to reduce the risk of flooding.
Flood Insurance for Your Home & Contents
Flood insurance treats your home (building) and contents separately, so if you’re required to buy this insurance you get to decide whether to include contents in your policy (extra cost) and note that the land on which your home sits, isn’t covered. The first covers your building, the latter covers your possessions; neither covers the land they occupy. To give you a better idea of what’s covered:
Building Coverage Includes …
- Sandbags, supplies and labor up to $1,000 to protect insured buildings from flooding.
- Cleanup after a flood and …
- Insured building – from the foundation, staircases, unpainted drywall and ceilings, including fiberglass insulation.
- Tanks and pumps – water, oil (the oil in them), natural gas (gas in them) and/or tanks used with solar energy.
- Electrical and plumbing systems and required utility connections, furnaces, heat pumps, central air-conditioning equipment and water heaters.
- Appliances – refrigerators, cooking stoves, and built-in appliances likes dishwashers.
- Permanently installed carpeting over unfinished flooring.
Contents Coverage Includes …
- Food freezers and the food in them.
- Personal belongings (not below grade) like clothing, furniture, curtains and electronic equipment.
- Certain valuable items such as original artwork and furs (up to $2,500).
- Portable and window air conditioners, portable microwaves and dishwashers, washing machines and dryers.
- Carpeting not already included in property coverage.
What Is NOT Covered by Flood Insurance …
- Living expenses such as temporary housing (although most homeowner policies cover alternative living expenses, known as ALE).
- Basement improvements like finished walls, floors, ceilings or personal belongings kept in the basement, like furniture and other contents.
- Damage caused by moisture, mildew or mold that could have been avoided by the property owner.
- Currency, precious metals and valuable papers such as stock certificates.
- Property and belongings outside the insured building, i.e. trees, plants, wells, septic systems, walks, decks, patios, fences, seawalls, hot tubs and swimming pools.
- Financial losses caused by business interruption or loss of use of insured property.
- Most vehicles, like cars and boats, so check your insurance policies for these.
Links to Buy Flood Insurance and Process Claims
Flood coverage is available for up to $250,000 in damages for homes and individual condominium units (condo associations have a different type of policy). You can also pay for contents coverage up to $100,000 in losses. When buying flood insurance, you’ll pick from one of 2 common reimbursement methods (replacement cost or actual cash value), similar to regular homeowners insurance. There is a 30 day waiting period on new flood insurance policies (exception may exist when required to obtain a new mortgage).
The average premium for one year is $600 according to the National Flood Insurance website. Remember that’s an average of people in high risk areas that are required to carry this insurance. Those who buy flood insurance voluntarily may have premiums as low as $129. It sounds like a lot of money but when you realize the average residential flood claim (between 2007 and 2011) was almost $30,000, it might seem worthwhile.
- FEMA National Flood Insurance Program, Summary of Coverage
- Flood Insurance Claims Handbook
- Filing Your Flood Insurance Claim
- Flood Insurance Frequently Asked Questions.
Recent article, http://science.time.com/2013/07/17/the-costs-of-climate-change-and-extreme-weather-are-passing-the-high-water-mark/?hpt=hp_bn18 explains why today’s flood insurance motivates the wrong behaviour.