Water damage and flood damage are considered two different types of hazards. All homeowners insurance policies exclude coverage in the event that damage is caused by flooding. When two or more acres of normally dry land or two or more properties are inundated by water, a flood occurs. If a washing machine hose breaks or rain enters the house through the roof or a broken window, there is water damage and coverage is covered by homeowners insurance.
Damage caused by a flood is compensated through flood insurance. Unlike homeowners insurance offered by private companies, this type of policy is available from the federal government. The National Flood Insurance Program (NFIP) is the government agency that offers these policies. NFIP is administered by the government through the Federal Emergency Management Agency (FEMA). NFIP works through private insurance companies to help make flood insurance available to property owners and renters. The private insurance companies use property and casualty insurance brokers to sell the flood insurance to property owners and renters. The cost of the policy for a specific property does not vary from company to company or agent to agent. The main factor that determines the cost for a policy is the location of the property and the flood risk as determined by NFIP. Flood maps are used to predict flood risk in a particular geographic area and the specific height of a property further determines the level of risk.
Flood insurance provides coverage for buildings and contents. There is a waiting period of 30 days from the date of purchase for a policy to take effect. Historically, about 25% of flood insurance claims come from low to moderate risk areas. Since premiums are reduced in lower-risk areas, property owners and renters will pay a reasonable amount for a policy relative to their risk of damage caused by flooding. For high-risk areas, a mortgage lender is required by federal law to require a property owner to take out a policy that provides coverage for the building in the event of a flood. content coverage is not part of the requirement.
Just a small amount of water from a flood can cause many thousands of dollars in damage. All property owners and tenants should carefully consider purchasing flood insurance to protect their building and contents. Keep in mind that a lender only needs a policy if the property is in a high-risk area and only for on-building coverage. Also remember that a significant percentage of flooding occurs in low-risk areas. Finally, don’t forget about the 30-day waiting period for flood insurance to take effect.