Far too many homeowners are under the erroneous belief their homeowner insurance covers flooding. This simply isn’t true. If you live in an area prone to hurricanes, tropical type storms, heavy rains and other watery weather conditions, flood insurance would be a wise investment.
The National Flood Insurance Program (NFIP) was created by Congress in 1968. The purpose was to provide a means for property owners to financially protect themselves in the event they experienced a flood.
The program isn’t for home owners only. It covers renters and business owners as long as their community participates in the NFIP. This means the participating communities have agreed to adopt and enforce ordinances that meet or exceed FEMA requirements to reduce the risk of flooding.
The reason the community adopts FEMA requirements is that FEMA administers the NFIP. The FEMA rules are not overly burdensome to the community. They have to first join the NFIP and enforce sound floodplain management standards.
Flood insurance is not purchased through FEMA or the NFIP. Rather, consumers purchase this coverage through property and casualty (PC) insurance agents. Neither the agents nor the participating insurance companies can set their own rates.
Flood insurance rates depend on many factors. The most obvious are the date and type of construction of your home coupled with your building’s level of risk. This tells you flood insurance coverage protects both buildings and contents. The land your buildings or contents occupy is not covered. You can not insure land.
According to the NFIP, building coverage includes the insured building and its foundation, the electrical and plumbing system, central air conditioning equipment, furnaces, water heaters, refrigerators, cooking stoves, built in appliances and permanently installed carpeting over unfinished flooring.
The NFIP says clothing, furniture, electronic equipment, curtains, portable and window air conditioners, portable microwaves and dishwashers, carpeting that is not already included in property coverage and clothing washers and dryers are included under contents coverage.
If you have a flood claim, you will be reimbursed in one of two methods. The first is called Replacement Cost Value (RCV) and the second is Actual Cash Value (ACV).
The RCV is the cost to replace damaged property. It is reimbursable to owners of single-family, primary residences insured to within 80% of the building’s replacement cost.
All other buildings and personal property (i.e. contents) are valued at ACV. The ACV is the RCV at the time of loss minus physical depreciation. Personal property is always valued using the ACV.
Flood insurance can seem complicated so it is wise to have the agent answer all of your questions. If you have to, go over each coverage until you understand what is and is not covered.