Flood Insurance: What It Is? How Does It Work? What Does It Cost?

Flood Insurance: What It Is? How Does It Work? What Does It Cost?

With the changing climate, floods nowadays are becoming a lot more frequent and devastating. Indeed even minor flooding can cause a lot of damage to your home, belongings, and business. And Lizzie Litzow, the spokesperson for the Federal Emergency Management Agency, backs us. She says that flooding is the most common and costly disaster that can happen anywhere. Just 1 inch of water can cause up to $25,000 in damage to a home or apartment. And that is precisely why we need flood insurance!

But you might think that I already have a homeowners’ policy. Why would I buy a separate flood policy? Well, because sadly, the homeowners’ policy does not cover floods at all. You need a different policy to cover the flooding damage. And in case you have a mortgage and live in a flood-prone area, your lender will mainly require a flood policy.

So, now that we know that why flood insurance is essential, here is all you need to get started. Let’s begin!


What Is Flood Insurance?

Before we know what flood insurance is, we need to understand what is termed a flood.

Your insurance underwriter will call it a flood if the water covers at least 2 acres of normally dry land. Or if it damages at least two properties, one of which has to be yours. Even if any one of the above conditions is met, it is called damage due to flood.

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Another set of conditions is where the water is coming from. If the water source is overflowing tidal or inland waters, or mudflow, or unusual accumulation or runoff of surface waters from any source.

Lastly, if the shorefront land sinks or collapses due to waters above the anticipated cyclical levels.

In all the above cases, the damage is termed as damage due to flood.

Coming back to flood insurance, the policy that protects you from all these damages is called a flood policy.

Also read: Earthquake insurance: What it is? How does it work? What it covers?

The advent of the National Flood Insurance Program (NFIP) has ensured that insurance is available at the lowest rates to everybody. Over 50 insurance companies and thousands of agents spread across the country offer insurance from NIFP. And thus, you do not have to shop around for a good deal. This provides convenience, affordability, and reliability all in one single package!


How Does Flood Insurance Work?

Although the basics of flood policy are just the same as any other policy, you buy it, pay premiums, and file claims whenever in need. But still, there are a few aspects you should know before you sign in for anything.

  1. We can insure both the structure and contents of our home. But the catch here is that they are both purchased separately with separate deductibles.
  2. Another important aspect of this policy is that buildings are covered at replacement cost while your belongings are covered on an actual cash value basis.
  3. The next thing to consider is the limit of the coverages. For the structure of your home, it is $250,000 and $100,000 for the contents of your home. Similarly, for the commercial flood policy, the limit is $500,000 for structure and $500,000 for the contents.
  4. Lastly, a flood policy does not cover cars. They are covered under the comprehensive auto insurance policy, which is optional coverage.


What Does Flood Insurance Cover?

It aims to help you recover from the losses you have had due to the flood. It may not cover collectibles and jewelry etc., for which you need a separate insurance policy. But it covers almost everything that ensures you a comfortable home and life.

Here is a small table that mentions what is covered under both the building coverage and contents coverage.

Things Covered Under Building CoverageThings Covered Under Contents Coverage
Furnaces and water heatersPersonal belongings like clothing, furniture, etc.
Plumbing and electrical systemsMicrowave oven
Fridge, stove, and other built-in appliancesCurtains
Carpets but only permanently installed ones.Washer & Dryer
Window blindsCarpets but those not included in the building coverage
Permanently installed cabinets, paneling, etc.Portable and window AC
Detached garagesCollectibles like artworks and furs, etc. up to $2,500
Foundation walls, staircases, etc.
Solar energy equipment, fuel tanks, well water tanks, and pumps.


What Doesn’t Flood Insurance Cover?

Nothing is perfect. And so is our flood insurance policy. However, it covers all the necessary things, but still, there are a few aspects it doesn’t cover. And they are:

#1: Mildew, Moisture, or Mold

Any damage caused due to mildew, moisture, or mold that the property owner could have avoided or is not directly caused by a flood is not covered under the policy.

#2: Earth Movement

Any earth improvement caused or not by the flood is also not covered by the insurance policy.

#3: Additional Living Expenses

The expenses you incur as you live in a temporary shelter while your home or office is being rebuilt/repaired are also not covered by the flood policy.

#4: Financial Losses Due To Business Inoperability

As your business activities are interrupted due to floods, you incur a lot of financial losses. Your policy does not cover these losses either.

#5: Vehicles

Most vehicles like cars, etc., are not included in the cover, and neither are their parts.

#6: Currency, Valuable Papers, etc.

Valuable papers like stock certificates and currency stored in your home are not part of the cover. Also, precious metals like gold, platinum, etc., are not covered.

#7: Anything Outside Of The Insured Building

Things like trees, walks, septic systems, seawalls, decks, patios, hot tubs, plants, swimming pools, wells, etc., outside the insured building, are not covered.


Last Words…

A flood insurance policy can help you start over and minimize your losses. It is not easy to recover from a disaster, whether small or big. The least we can do is insure ourselves to not end up in a financial crisis. And NFIP makes buying insurance a breeze. It offers extensive protection at very economical rates. So, this was all about the flood insurance policy.