How Does Flood Insurance Work?
When you suffer property damage as a direct result of a flood, your flood insurance policy covers the cost of your losses (minus your deductible ). Most homeowners purchase a flood insurance policy backed by the federal government through the National Flood Insurance Program ( NFIP ).
The NFIP is part of the Federal Emergency Management Agency ( FEMA ), but the two should not be confused. FEMA organizes government response to declared disasters, including natural disasters like floods.
FEMA sometimes offers small payouts to property owners. The average payout from FEMA is $7,000 to $8,000, while flood insurance will cover you up to your coverage limits.
What’s Covered by Flood Insurance?
Flood insurance policies are made up of two parts: building coverage and contents coverage. Building coverage is mandatory with any flood insurance policy for homeowners. It covers:
Well-water tanks and pumps
Electric and plumbing systems
Refrigerators, stoves, and dishwashers
Built-in bookcases, paneling, and cabinets
Permanent air conditioners
Contents coverage is optional but highly recommended. It covers:
Portable air conditioners
Washer, dryer, and microwave
Furniture, electronics, and artwork
Clothing, furs, and jewelry
You should note that you have the choice to cover your property for actual cash value (ACV) or replacement cost value (RCV). With ACV coverage, you’re covered for the value of your property minus depreciation and your deductible.
With RCV, you’re covered for the cost to replace your property minus your deductible only. When possible, we recommend purchasing an RCV policy.
What’s Not Covered by Flood Insurance?
First, flood insurance does not cover you for water damage that isn’t caused by flooding. A broken sump pump, for example, will not be covered. You also won’t be covered for flood damage resulting from negligence, such as leaving a window open during a storm.
Some property and property losses are almost never covered by a flood insurance policy unless you have a special rider. This includes:
Currency and precious metals
Stock certificates and other documents
Personal property kept in crawl spaces or basements
Business losses caused by flooding
Cars, trucks, and other vehicles
Landscaping and fencing
Patios and decks
Swimming pools and hot tubs
Additional living expenses (ALE)
Additional living expenses (ALE) are an important exclusion. ALE covers the additional costs of living temporarily outside your home. This includes hotel or other temporary housing costs, plus pet service, fuel, and laundry costs. We recommend adding ALE coverage to your plan.
Finally, to cover vehicles, you will need an auto insurance policy that covers flood damage. This is often covered by the comprehensive coverage portion of a policy, which is optional.
Flood Insurance Coverage Limits
The flood insurance limits with NFIP policies are $250,000 for building coverage and $100,000 for property coverage. Remember that your policy covers you for the value of repairing or replacing your property— not the market value of your home. Your home’s market value is what your home would sell for in a real estate transaction.
Some properties will exceed these coverage limits. These could be large homes, homes with luxury finishings, or homes with other special features that make them more expensive to rebuild. Some people may have personal property that exceeds the contents limits.
In this case, property owners should purchase additional flood insurance coverage through a private flood insurance provider.
How Does Flood Insurance Pay Out?
Flood insurance pays out when you submit a covered flood claim. To submit a claim, contact your insurance provider as soon as possible. If the flood is a declared disaster, your provider may set up a special customer service line to process claims.
When speaking to your insurance provider, ask about:
How long you have to submit the claim
Whether the claim will exceed your deductible
How long the claims process will take
Whether you need to submit an estimate for repairs
After you get the information you need, you should also address clean-up as soon as it’s safe to do so. Removing excess water and debris, running a dehumidifier, and cleaning with bleach makes it less likely that further damage will occur. It also reduces the chances of mold, mildew, and rot.