Flooding can happen anywhere—and even an inch of water can cause major damage to your home. If you’re looking to take out a mortgage on a house in a high-risk flood zone, the lender will require you to purchase flood insurance. Before you buy a policy, though, it’s important to understand what flood insurance does and doesn’t cover.
National Flood Insurance Program
The National Flood Insurance Program (NFIP) offers two types of policies. One covers the cost to rebuild a house or its actual cash value, whichever is less, with a maximum coverage amount of $250,000. The second type of policy covers the actual cash value of personal property, up to a maximum of $100,000. You have the option to purchase one or both policies. Be aware that these policies have separate deductibles.
A flood insurance policy will only cover losses that are a direct result of flooding. “Flooding” means that water must cover at least two acres or must have damaged your home and at least one other property.
Federal flood insurance will cover the plumbing and electrical system, furnace, fuel tank and fuel, water heater, heat pump and air conditioner. It will often cover a refrigerator, stove and built-in appliances, such as a dishwasher, as well as permanently installed carpeting, curtains, blinds, damaged cabinets, foundation walls and staircases. These policies can also cover a detached garage and personal property, as well as mudflow, groundwater seepage and a sewer backup.
NFIP limits coverage for a basement, crawlspace or living space with a floor below ground level and will not cover damage caused by mold, mildew or moisture unrelated to flooding or that the homeowner could have prevented. These policies will not pay for damage caused by the movement of the earth, even if the movement was a result of flooding. They will also not cover loss of use, additional living expenses, financial losses due to business interruption, most vehicles or property located outside of an insured building.
Thousands of agents across the country sell NFIP policies, even to homeowners who don’t live in a flood plain. Coverage takes effect 30 days after a policy is purchased, meaning if a hurricane is in the forecast, you can’t purchase flood insurance at the last minute and expect to be covered. Be sure to be proactive to protect yourself and your home, especially in a high-risk area.
Private Flood Insurance
Some private insurance companies also offer flood insurance policies that can provide supplemental coverage above the federal limits or serve as a primary flood insurance policy. In some cases, private flood insurance may be less expensive than an NFIP policy and it may cover additional living expenses if your home is uninhabitable.
Do You Have the Right Flood Insurance Coverage?
Many homeowners don’t think they are at risk of flooding or assume their homeowners insurance policy covers it. A flood insurance policy can cover many of the costs associated with flood damage and is worth the cost if you live in an area where flooding is more common. If you don’t have flood insurance coverage, you can discuss your options with your insurance agent, or your real estate agent can offer smart suggestions based on your neighborhood and risk.
