Flood Insurance Coverage

One of the most commonly misunderstood types of insurance is flood insurance coverage. Many property owners aren’t aware of the fact that homeowner’s property insurance covers a great number of natural disasters with the exception of floods. Flood insurance is a separate insurance product altogether which requires a separate policy. Then there are policies which cover the building and others which cover certain contents within the building. Before assuming that you have the flood insurance coverage you need to avoid catastrophic loss, it is a good idea to take a few moments to understand the basics of flood insurance.

The National Flood Insurance Program
The National Flood Insurance Program (NFIP) was actually instituted in 1968 as a result of the National Flood Insurance Act of that same year. It is a Federal program in participating communities that allow property owners to purchase flood insurance for the building property and/or specific contents therein. This was the result of many insurance companies dropping flood insurance coverage after suffering devastating financial losses. Participating communities agree to adopt and enforce floodplain management as defined by NFIP and when in compliance, those communities can participate in the National Flood Insurance Program. However, the government doesn’t underwrite the insurance policies. This is left to their ‘partners’ which are independent insurance underwriters.

Some Basics of the NFIP Policy
First and foremost, this is a specific peril insurance policy that only covers losses that result from prespecified types of floods. It is based on actual cash value (ACV) up to the policy limits. This type of flood insurance policy has a maximum coverage of $250,000 ACV, or to the policy limit, whichever is the smaller amount. Also coverage for contents must be purchased separately. Finally, this policy does not guarantee replacement costs. A guaranteed replacement policy guarantees to replace what it costs to rebuild the home, even if those limits exceed what the policy is written for. Flood insurance never pays more than the policy is written for. Therefore, it is always in your best interest to take that into account when purchasing flood insurance coverage.

Building Property Flood Insurance Coverage
Again, the amount that is covered is based on the ACV and of the policy liability limits, but exactly what building property can be covered should also be understood. Of course the building itself and the foundation are covered but so too are the plumbing and electrical systems. Furnaces, central air and water heaters are covered as are refrigerators, stoves and certain built in appliances. Carpet that is permanently installed over an unfinished floor is a flood insurance coverage as well as paneling, wallboard, cabinets and bookcases that have been permanently installed. For a complete list of coverages you can visit the NFIP website.

Personal Property Flood Insurance Coverage
Personal property flood insurance coverage is only available if you have a separate policy. This is not included in the basic policy and covers such things as clothing, electronics and other personal belongings. Certain furnishings are also covered such as curtains, portable and/or window air conditioners, portable appliances, any carpets not covered in the building policy, food freezers and the contents, and some valuable items such as furs or original artwork up to a limit of $2,500.

Certain things are excluded under personal property flood coverage such as damage from mildew or moisture which could have been avoided had precautions been taken. Valuable papers (i.e. stocks and bonds), currency, precious metals are also excluded from coverage. Keep in mind that any personal property that belongs outside the building is also not covered as well as landscaping such as trees and shrubs. However, since there is no coverage for floods resulting from hurricanes, storms and other natural disasters, it is advisable to carry flood insurance especially if you live in a floodplain.

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