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February 24, 2014

Should I have Flood Insurance?

When it rains, it pours. And when it pours, rivers and creeks have a tendency to flood. Water can be a very powerful force when it becomes abundant enough, and flood damage can be very costly if you need to make repairs to your home. Unfortunately, many property owners are unaware that flood protection is not included in their homeowners insurance and must be purchased separately.

National Flood Insurance Program Statistics

•Floods are the #1 natural disaster in the U.S.
•The average flood insurance claim in recent years is $35,000.
•From 2002 to 2011, total flood insurance claims in the U.S. averaged nearly $3 billion annually.
•New Jersey is the top state in the U.S. for flood insurance claims. More than $628 million of claims payments were paid in the state in 2011 alone.
•People who live outside high-risk flood areas file more than 20% of NFIP claims and get more than 33% of disaster relief funds.

Do I Need Flood Insurance?

Flooding occurs in all 50 states and is not covered in home or renter’s policies. But does that mean everyone should have flood insurance? The choice comes down to your level of risk. Unfortunately, that can be difficult to determine.

According to FEMA, most people are likely to need flood insurance at some point. FEMA has flood plain maps for every area in the country, and it lists areas as 10-year, 30-year, 50-year or 100-year flood plains based on elevation, slope of the land, soil, proximity to water sources and other factors.

What Kind of Flood Insurance Do I Need?

There are actually several kinds of flood insurance coverage you can purchase:

•General Property Policy - can be used to cover 5 or more family residential buildings and non-residential buildings
•Residential Condominium Building Association Policy - to insure condominiums and townhomes
•Standard Flood Insurance Policy - Dwelling - The most common form of coverage, used to insure up to 4 family residential buildings and single family dwelling units in a condo/townhouse building

For standard dwelling coverage, you have two options:

•Building property coverage - up to $250,000
•Personal property coverage - up to $100,000

You can opt to purchase just one of these, or both - but the NFIP strongly recommends homeowners purchase both coverage options. It's a good idea to speak with your lender, as a mortgage company can also require you to carry a certain amount and type of flood coverage.

These two combined coverage types will cover most things in your home, with some exceptions. For example, you will not be reimbursed for damage to most cars and ATVs, any belongings outside of the building (including landscaping, septic systems, patios, hot tubs, and swimming pools), currency, precious metals, or stock certificates.

If you have a multi-story home, the coverage could be more complicated depending on your location in a flood zone and the age of your home. Basements, crawlspaces, and walkout basements have limited coverage, no matter the age or type of home you have. If your home has any of these items, make sure to ask your insurance agent about how your items can be protected from flood damage. For example, even if you carry both building property and personal property coverage, you may not have any insurance protection for the following items in your basement:

•Personal items, like clothes, electronics and furniture
•Non-drywall walls or ceilings
•Bookcases and built-in units
•Window treatments

A flood insurance policy won't ever pay out any more than the exact amount of the policy (i.e. never more than $250,000 for structural damage). You can choose to buy building property flood insurance that's either at replacement cost value (RCV) or actual cash value (ACV). You can only buy personal property flood insurance at ACV coverage amounts. These two types of reimbursement generally break down this way:

Replacement cost value: The cost to replace items that are damaged, without taking into account depreciation over time

Actual cash value: The cost to replace items at the time of the loss, taking into account depreciation

Flood insurance is complicated. It's highly recommended that you speak to a professional agent who can help you get the coverage you need and fully understand your options.

What Events Does Flood Insurance Cover?

Flood insurance covers physical damage to structures affected by flooding from heavy snowmelt, runoff following heavy rainfall, and so on. Your flood insurance policy will also cover any damage caused from erosion due to currents or uncommon water cycles (for example, if your home is built along a shore that collapses due to waves, currents or rising water).

Damage caused by mudflows or mudslides can be covered, but the policy may have very specific definitions for a covered mudslide event. It’s important to read your insurance documents if you are in a high-risk mudslide area.

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