There is a lot of misinformation about flood insurance “floating around” these days. The most dangerous is that standard homeowners’ policies will cover the damages caused by flooding. They do not and it only takes a few inches of water to cause great damage in a home. This often will cost far more in damages than most homeowners can afford to pay out-of-pocket. As a result, many homeowners today are purchasing flood insurance to protect themselves should such a worst-case scenario occur.
Flood insurance provides protection for a person’s home from damage caused by flooding or mudslides. In parts of the country that are high-risk areas, like coastal communities, this insurance is mandatory for homeowners. For those who rent, it can be sometimes be mandatory as well. Many people assume the insurance is already included in their standard homeowner’s policy- again, this is certainly not the case.
Insurance coverage can vary depending upon how much coverage is obtained. While many will purchase coverage through a private insurance company, others choose to obtain it through the federal government’s insurance program, which is available to those who live in very high-risk flood areas. No matter how or where the insurance is purchased, it covers damage to structures such as the walls or foundations, along with plumbing and electrical damage. Any major appliances in the home, such as refrigerators or stoves, are also covered in this kind of a policy.
Flood policy covers damages caused by flooding that happens due to excessive rains, hurricanes, or even earthquakes. It matters not what caused the flood; it is the flooding itself that is covered. However, many homeowners are living under the false idea that if they have a policy that protects their home from destruction from, for example, earthquakes, any flooding that results from earthquakes will be covered by their homeowners’ or earthquake insurance. This is false. With earthquake insurance, direct damages from the trembler would only be covered. Flood damage, even though it occurred as a result of the earthquake, would in this case not be covered.
Why is the destruction caused by flooding not covered in homeowners’ insurance policies as a point of practice? It is an economic issue: Those who generally would need protection from flooding reside in a high risk area. As a result, the risk pool is too small to absorb the losses insurance companies would inevitably incur- flooding would simply make an insurance company’s profitability vaporize.
It is important to keep in mind that one’s personal property inside the home is viewed differently by different policy types. Government policies will generally insure personal property up to $100,000. Should an individual have more than that, they must obtain insurance from a private company. Anything outside the home, such as motor vehicle, swimming pools or other such things are not covered, nor is damage sustained to landscaping or other outdoor improvements. In both government and private policies, exclusions do exist for such items as money, stock certificates and gold that were in the home during the flooding event.
While living in a flood-prone area might be at times stressful, having the proper coverage can make life much easier should disaster strike. Remember to read everything and ensure that you understand all the parts of the policy before signing on the proverbial dotted line- this will give you the peace of mind you deserve no matter what happens.