Understanding Flood Insurance Policies

Because insurance can be an important coverage for a homeowner, business, or renter, whether in a low-, moderate-, or high-risk area, understanding a flood insurance quote is important for any purchaser.

Generally, physical damage to a building or personal property directly caused by a flood is covered by a insurance policy that covers flood damage specifically. For example, damage to a building or personal property that is caused by a sewer backup is covered if the backup is a direct result of flooding; however, if the backup is caused by something other than flooding, the damages are not covered.

Coverage also may include cleanup, repair of water-damaged property, including inside walls, and remediation of mildew, mold, and fungus that results from the water damage.

Examples of water damage covered by this type of insurance include:

• A nearby river overflows into a home or business.
• Heavy rain seeps into a crawl space or basement because the soil cannot absorb the water quickly enough.
• Heavy rain, or a flash flood, causes a mudslide that covers a home or business.

Insurance policies always state a maximum amount that the insurer will pay for a loss. For a homeowner, this insures the structure for up to $250,000 and $100,000 for contents, or personal property, in the structure. Renter’s insurance for floods covers contents in a leased property up to $100,000. Commercial insurance allows for coverage of up to $500,000 for the structure and up to $500,000 for the contents in the structure.

Flood insurance policies have become an affordable form of insurance. The NFIP estimates that basic insurance coverage for floods can be purchased for as little as $200 per year.

Flood insurance also offers purchasers a way to insure their real and personal property without a payback requirement. For example, if a flood area is declared a federal disaster, residents, renters, and business owners are eligible to receive federal loans to cover their losses; however, this assistance must be paid back, whereas paid flood insurance claims do not.

Most flood insurance companies require their policyholders to report, as soon as possible, any flood-related claims. The insurer then may require the insured to provide proof of losses for real and personal property; for example, a receipt for a damaged washer and dryer.

Understanding the policy’s terms, limitations, and nuances is critical for any potential insurance purchaser to ensure a quick and complete payment on a claim in the event of flood damage.