Do You Need Flood Insurance?

Most standard homeowners insurance policies do not provide automatic coverage against losses due to water damage originating at or below ground level.

So unless you have specific insurance covering you against such losses, you could face a very expensive bill in the event that your house is ever flooded.

For this reason, if you live in an area which is at risk of flooding, such as by a river, lake or reservoir, it is strongly recommended that you take out flood or ground water insurance in order to protect yourself from suffering a potentially very large uninsured financial loss.

Such losses may include the cost of having to repair or replace soaked doors and door frames, wooden flooring, carpets, kitchen cupboards and furniture to name a few.

Generally, there are two types of coverages that are available to protect against such losses. The first is a sump pump failure / sewer backup endorsement that you can add to your existing home insurance policy. The other option involves signing up with the National Flood Insurance Program (NFIP).

In this article we will look at both of these coverage options and discuss how they can be used to insure yourself against water damage to your property. However, before we begin, let’s start by looking at who actually needs flood insurance.

Should You Be Insured Against Flooding?

If you live near a large body of water such as a river, a reservoir, a lake or even a pond you would probably benefit from taking out flood insurance. This is especially true if you live in a residential area which has a lot of concrete or tarmac on roads and sidewalks.

Such surface coverings prevent water from seeping down through the soil. Instead, water seeps down through drains. However, in the event that these drains become blocked or flooded, heavy rain can quickly cause flash flooding to occur with devastating consequences.

Depending on the type of property you have and its location, will largely determine the extend of the resulting water damage that you suffer. If you have a basement for example, then you may not experience any flooding of your first floor which could minimize the amount of loss that you suffer.

Conversely, homes without a basement, especially those which are situated on low-lying areas of land, such as at the bottom of a hill, are likely to experience significant water damage to their first floor and suffer extremely large losses as a result.

Overall, it is up to you to make an assessment of your surrounding area and your relative risk of flooding to determine whether or not you would benefit from having flood insurance. However, if a risk does exist, then it usually best to insure yourself against it as floods can cause severe interior damage to homes that can be very expensive to recover from.

If you are still unsure as to whether you would benefit from having such coverage, try asking local residents in your area to see if they have taken out insurance against flooding . Alternatively, you can contact your local water board and ask them what the risk of flooding is in your area.

Be sure to double-check however, that the FEMA flood maps used to determine your level of risk are in fact accurate.

Sump Pump Coverage

Sump pump/sewer backup insurance is designed to provide you with coverage against damage as a result of water accumulation due to heavy rainfall or rising ground water levels. A sump pump/sewer backup policy will also insure you for any costs involved with cleaning up, such as having to drain water away and disposing of rubbish.

However, in order to receive such coverage from an insurance company you must have a sump pump installed, typically in your basement, and the water damage must have occurred due to a failure of your sump pump to handle the excess water. Typically, such sump pump failures occur due to power outages or old or faulty equipment.

Most policies should cover such failures, but since policies can vary between different insurers, it is advisable to check the specific coverage that an insurance company provides you with.

Sewer Backup

Sewer backup coverage provides you with similar coverage to that offered by a sump pump policy and under similar circumstances, that being, you will receive compensation for damage and cleanup costs if your sewer backs up.

Both sump pump and sewer backup coverages are usually sold together with a coverage limit of $5000. With most insurance companies, you should be able to extend this limit to $50,000.

It is important to note that even though sump pump/sewer backup coverages are sometimes advertised as flood insurance that they are not actually true flood insurance. They only provide coverage against water seepage and surface runoff problems, not against a typical flood.

For true flood insurance, you need to sign up for the National Flood Insurance Program or take out temporary FEMA flood insurance.

Government Flood Insurance

Private home insurance policies do not provide coverage against flooding due to heavy rain. As a result, in order to insure your home against floods you must sign up for the National Flood Insurance Program, which is essentially a program run by the government although you deal with select certified insurance companies.

If you live in an area that is at risk of flooding and your local community participates in the NFIP, then you can insure yourself with premiums as low as $119 a year.

However, there is a very important clause to this program that you should be aware of before signing up. In order to be covered against flooding damage, your home and at least two of your neighbour’s homes must receive water damage as a result of a flood.

If only your home is damaged, then it is not considered to be a true flood. The only exception to this is if your home covers two or more acres, in which case only your home needs to be damaged in order to receive your flooding insurance coverage.

The two government agencies which provide flood protection are:

The Federal Emergency Management Agency (FEMA)

This type of emergency flooding insurance is provided for homes who are in communities which have applied to join the NFIP but have not yet been accepted.

FEMA flooding insurance tends to provide rather limited protection, typically providing your home with $35,000 worth of coverage and your contents with $10,000 worth of coverage. For most people however, this will not be enough to fully insure their home and belongings.

National Flood Insurance Program (NFIP)

For homes and communities that have been accepted into the NFIP, they can receive maximum coverage limits of $250,000 for their home and $100,000 for their home contents.

Differences With Home Insurance

Flooding insurance coverage differs quite substantially from regular homeowners insurance, so it is worth familiarizing yourself with the key differences if you are thinking of insuring your home against flooding.

The main differences are listed below.

• There is a 30 day waiting period from when you apply for flood insurance and when that coverage begins. So this is not something that should be left to the last-minute.

• There is a $500 deductible for building losses and a $500 deductible for contents losses.

• Settlement claims are paid on a depreciated basis and not the replacement cost.

• Landlords can purchase flood insurance coverage only for the building. Tenants can purchase coverage only for their contents. And homeowners can purchase both forms of coverage.

• Building and contents limits are bundled together in the same policy.

• Basements receive very limited coverage against water damage, so make sure that you check what is covered and what isn’t so that you know what risks you are exposed to.

The first step to take before you buy flood insurance is to check the risk of flooding in your area. Flooding risk can be characterized as low, moderate or high risk.

To buy flood insurance you should look for a FEMA certified home insurance agent. You should also check to see whether your insurance company participates in the NFIP to receive proper coverage.