Last week I reprised a post outlining reviewing your insurance in preparation for hurricane season (it started last Friday), and I wanted to follow that up with my annual overview on flood insurance. Flooding can happen at any time, whether it’s caused by torrential rains, a sub-tropical or tropical storm, or a hurricane. Let’s plunge into the two types of flood insurance coverage, as well as what happens if you need more than the standard policy provides.
A flood doesn’t occur when a major water leak occurs from a broken pipe, leaking water heater, etc. It occurs when water enters a home or business resulting from rising water caused by rivers, lakes & streams overflowing their banks, rising water from heavy rains, or tidal surge. This type of water damage isn’t covered by a home insurance policy, it’s only covered by flood insurance.
The two types of coverage available on a standard flood policy are coverage for the home or dwelling, and coverage for your personal property or contents. They may be purchased together or separately. For instance, some homeowners may elect to purchase coverage for their home, but not their contents or personal property, while renters only need coverage on their personal property.
Home or building coverage includes the home and foundation, electrical and plumbing systems, central air conditioning equipment, furnaces and water heaters, permanently installed appliances, permanently installed carpeting and flooring, cabinetry, and more. Contents coverage applies to clothing, furniture, electronic equipment, curtains and window treatments, portable and window air conditioners, throw rugs, and clothing washers and dryers.
The amount of home coverage should be the same as the amount the home is insured for on the home insurance policy, or the replacement cost value of the home. The maximum amount a standard, or government backed, flood policy will provide on the home is $250,000. If the home needs additional coverage to be rebuilt, this can be purchased with an excess flood policy. An excess flood policy provides coverage for homes valued at more than $250,000 and / or require additional contents coverage beyond $100,000.
Personal property coverage is valued on an actual cash value, or depreciated bases. That’s not great, but it does provide some level of coverage to help replace contents ruined by floodwaters. Deductibles for both the home and the contents coverage are usually expressed in dollar amounts such as $1,000 up to $5,000.
Unless the flood policy is required by the mortgage company for a closing, there is a waiting period between when a flood insurance policy is purchased and when it goes into effect. The waiting period is 30 days from receipt of payment. This is to prevent someone from buying a flood policy only when flood waters or a storm is approaching.
If your home is in a high-risk area, or a mandatory flood zone, your mortgage company will require you have flood insurance on at least the home. If your mortgage company does not require flood insurance, I recommend people consider it when your home is located within 50 miles of the coast or adjacent to a lake, stream, creek, or river. I also recommend it for anyone whose home is downriver from a dam, in an area susceptible to mudslides or near a dry wash. These are the type of locations more likely to experience a flood than someone whose home is high on a hill.
What do you think? Share your questions, comments, and experiences with me on my Facebook, Google +, and LinkedIn pages. I’d love to hear from you!