Understanding Flood Coverage: Are You Covered by Your Insurance Policy?
If you're like most of us, you tuck your home insurance policy into your household papers folder when it arrives and promptly forget about it. For many, our interest in our insurance coverage doesn't range far from how much the monthly premium is going to cost us. Our homeowner's insurance policy is simply not the reading material we reach for when we're ready to curl up at night and relax with a good read.
The information in that policy is something with which we should be very familiar, however. Especially the parts covering flooding and water damage. As residents across the southeastern U.S. have experienced this year, a storm can blow up quickly and flooding can hit when you least expect it. Are you certain that your homeowner's insurance has you covered? Now may be a good time to find out.
Start with the basics
The bottom line is that only flood insurance covers damage caused by a flood. You can purchase flood insurance from an insurance agent; you cannot get it straight from the government through its National Flood Insurance Program. If your current policy doesn't cover flood damage, talk to your agent about adding it.
Flood insurance policies are intended to cover the physical damage that floodwaters cause to your property and possessions. Just as you have to verify the specific coverage with other types of insurance policies, you also need to know what your flood insurance policy covers and what it doesn't. For example, if your home is damaged by sewer backup that is not a direct result of flooding, the damage will probably not be covered. This is why it is important to discuss with your agent the specifics of what your policy is going to cover.
A typical homeowner's insurance policy covers a variety of possible damages. Your actual dwelling should be covered but some other structures, such as a garage, may also be covered. Some policies will even cover fencing, driveways and sheds on your property. If you run a business from a separate structure on your property, this will probably require a separate policy to achieve adequate coverage.
Personal property will probably be accounted for in your policy. This may be included in a "contents" rider. The amount of coverage here may be limited to high-value items, such as jewelry.
Death by deductible
A deductible is exactly what its name implies: it is the amount that is deducted from the total insured loss. They are a standard part of the majority of insurance contracts. It is a way of splitting some of the risk between the policyholder and the insurance company. You can usually get a policy with a deductible as low, or as high, as you're willing to accept. Generally, the lower the deductible is, the higher the premium rates will be. With a high deductible, you will have to cover more of your repairs and restorations out of your own pocket, as your claim payment will be less. Deductibles may apply separately to the contents of a building and the actual building itself.
Rates and requirements
If you have a mortgage attached to your home, your lender may set a maximum amount for your deductible. This may result in a smaller pool of choices when selecting an insurance policy. If your home or business is located in a high-risk flood area, or if you've obtained financing through a federally regulated lender, you'll be required to have flood insurance. If you live in a moderate- to low-risk flood area, you may not be required by federal law to carry flood insurance but your lender may still insist on it. You'll need to specifically check on this point with your lender and your insurance agent.
The rate you'll pay for your coverage will depend on several factors. The date and type of construction of your home, for example, will be considered when calculating your premiums. The level of flood risk for your area will also be taken into account. Included in your premium may be a Federal Policy Fee. This is intended to help defray any additional cosst for compliance with higher standards developed after a flood. You may also have to pay the Homeowner Flood Insurance Affordability Act of 2014 Surcharge with your premium.
Check with your town or community's governing body, or a local attorney. If your community is a participant in the Community Rating System (CRS), you may qualify for a discount on your insurance premium. Communities involved with the CRS receive a discount on insurance based on the efforts of the community to reduce the flooding risk for the area.
There may also be a waiting period of 30 days from the date you purchase your insurance until your policy goes into effect. Be sure to nail down this provision with your agent at the time you purchase your policy.