Basic Homeowners Insurance Does Not Cover Floods:
Evaluate your need for flood insurance now.
According to the National Flood Insurance Program (NFIP), all 50 states have experienced floods or flash floods in the past five years. Even just a few inches of water can cause tens of thousands of dollars in damage, so before you're faced with rising water in your area, the National Association of Insurance Commissioners (NAIC) offers this information to help you get smart about your flood insurance options. The NAIC also has tips on how to prepare before a storm hits and what to expect if you need to file a claim.
Flood Insurance Basics
The NFIP defines flooding as a general and temporary condition where two or more properties or two or more acres of normally dry land are inundated by water or mudflow. Although anyone could sustain a loss from flooding, not everyone faces the same level of risk. The NFIP helps communities understand their risk with flood maps. Risk levels are divided into three categories:
- High-risk areas have at least a 1% chance of flooding annually. All homeowners in these areas with mortgages from the federally regulated or insured lenders are required to buy flood insurance.
- Moderate-to-low-risk areas have less chance of flooding annually, but the possibility is not completely removed. Flood insurance in these areas is not required, but it is recommended for all property owners and renters.
- Undetermined-risk areas are where flood-hazard analysis has not been conducted, but a flood risk still exists.
The standard flood insurance policy pays for direct physical damage to your insured property up to the replacement cost or actual cash value (ACV) of actual damages, or the policy limit of liability, whichever is less. It covers structural damage, including damage to the furnace, water heater, air conditioner, flooring and debris clean-up. Coverage for basements, crawlspaces and ground-level enclosures on elevated homes is limited, so talk to your insurance agent about any restrictions in your policy. The contents of your home are not covered under a standard policy.
How to Buy Flood Insurance
Homeowners, renters, and business owners are eligible to purchase flood insurance through the NFIP if their community participates in the program. Flood insurance is only sold by licensed insurance agents in your area. The NFIP offers an agent locator to help you find a local agent. If you are in a high-risk area, or would like to find out more about flood insurance, contact your insurance provider to find out if your community participates in the NFIP and to get a quote.
It's important to note that flood insurance does not go into effect immediately. Most policies have a 30-day waiting period, so plan accordingly if you are looking to purchase flood insurance.
Flood Insurance Reform
In July 2012, Congress passed the Biggert-Waters Flood Insurance Reform Act of 2012 (Biggert-Waters). The law extended the NFIP for five more years and mandated significant reforms to make the NFIP more financially stable. As provisions of Biggert-Waters began to take effect, however, the reforms had unintended consequences for some homeowners, who saw their flood insurance premiums dramatically increase.
To help ease the burden of these increases, the Homeowner Flood Insurance Affordability Act of 2014 was signed into law in March 2014. This law does not completely replace Biggert-Waters, but it does modify or repeal some provisions of the previous law. One of the most significant changes in the Homeowner Flood Insurance Affordability Act is that it lowers or prevents rate increases for some flood insurance policyholders. It also provides refunds to policyholders paying increased premiums due to Biggert-Waters.
For more information on how flood insurance reforms may impact you, contact your insurance provider or state insurance department.
You can find more information on disaster preparedness at Insure U. The NAIC is also offering tips on what to do before the storm hits and how to file a claim if you suffer a loss.
Your state insurance department can also answer questions about flood insurance or severe weather threats in your area.