Flood Insurance: What It Covers and When You Need It

Flood Insurance: What It Covers and When You Need It

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Flood insurance protects a structure and its contents from water damage caused by a flood, which is technically defined as a temporary condition where two or more acres of normally dry land are inundated by water or mudflow. Homeowners insurance does not cover damage caused by a flood, so anyone with a home in an area susceptible to flooding should consider purchasing flood insurance.

Flood insurance covers your house and everything inside

A flood insurance policy covers two types of property: the structure of your home and the contents. This distinction is made because each type has its own deductible and limit. Note that flood insurance policies do not cover the land your home sits on.

The coverage for the structure of your home typically includes:

  • Foundation
  • Electrical and plumbing
  • Central air systems and furnace
  • Water heaters
  • Refrigerators, cooking stoves and built-in appliances
  • Permanently installed carpeting over an unfinished floor

Contents inside your home that can be protected by a flood insurance policy include:

  • Clothing
  • Furniture
  • Electronics
  • Portable microwaves and portable air conditioners
  • Dishwashers
  • Washers and dryers
  • Carpeting that is not covered as part of the structure

If you purchase a flood insurance policy, make sure you look closely at the individual categories of the contents in your home. It's crucial to be aware of the estimated value of each category and how your coverage limits compare to those amounts. Certain categories might have limits well below the total value of the possessions you own that qualify.

For example, artwork and furs generally have a total limit of only about $2,500 — that is, your insurance company will reimburse you up to $2,500 if anything should happen to them. Because of the priceless nature or high value of belongings such as art and fur coats, it wouldn’t take many items (maybe even just one) to go over the limit in this category. If that's the case, you'll want to see if there is additional protection you can buy for those specific categories.

Basements and expensive valuables may not be covered

As with all insurance policies, there is a list of exclusions that apply to flood insurance. Currency, precious metals and any valuable paperwork are generally not covered by policies. Most self-propelled vehicles, including cars, are not covered either.

The area underneath what is typically the first floor in a house or property might enjoy only limited flood insurance protection. Specifically, only select items are covered in any areas of a dwelling below the lowest elevated floor (such as a crawl space) and in basements.

For example, in a basement, only the foundation, drywall, insulation, staircases, electrical outlets and switches, and central air conditioners are insured when it comes to the structural coverage in your flood insurance policy. Coverage of personal property in the basement is generally limited to washers and dryers, food freezers (excluding walk-in models) and portable air conditioners.

Most other personal property you might store in your basement will not be covered. For example, clothing, electronic equipment, kitchen supplies, furniture, bookcases, shelving and window treatments will not be covered in the event of a flood if they are stored in the basement. This can be problematic for homeowners who've turned their basement into a home theater space, to give just one example.

When do you need flood insurance?

Whether you need flood insurance depends on the risk of a flood in your location and whether the government or a mortgage lender requires it. Generally, the Federal Emergency Management Agency (FEMA) determines if your residence is at risk of flooding. The agency updates the nation’s Flood Insurance Rate Maps (FIRMs) and partitions them into viewable "panels" online.

You can check FEMA's Flood Insurance Rate Maps to see what flood zone area your house sits on. Various flood zones are mapped in each panel, and each area falls into one of three categories below:

Highest risk: Special Flood Hazard Areas (SFHAs)

Special Flood Hazard Areas (SFHAs) are deemed to have a 25% chance of flooding at least once within 30 years — the full term for most mortgages. The federal government mandates that each residence in an SFHA with a federally insured mortgage be protected by an active flood insurance policy.

It is the lender's duty to ensure that all borrowers within an SFHA purchase flood insurance. Even if you aren't in an SFHA, a lender might still require you to have a flood insurance policy in order to lower the risk of losing its collateral on the loan.

Coastlines are a good example of a location where SFHAs are very common. Hurricanes and tropical storms frequently flood coastal regions with heavy rains and storm surges, which can cause flooding hundreds of miles inland.

Some regions that might fall into this highest-risk category for flooding include the Florida panhandle, coastal regions along the Gulf of Mexico and the Atlantic Coast, stretches of the Mississippi River, and even areas of the Rockies where ice caps can melt and cause springtime flooding in nearby communities. If you're living in one of these areas, flood insurance may be a wise investment even if it isn't required by your lender.

Moderate-to-low risk

In these areas, the likelihood of flooding can be substantially lower. However, nearly 20% of all claims to the National Flood Insurance Program (NFIP) come from this category. Flood insurance is not federally required in these areas, but it is still recommended.

Areas with undetermined risk

These are areas where no flood analysis has been conducted. This does not mean the areas are without risk of a flood, and that uncertainty is usually reflected in the cost of a policy. The majority of the U.S. has been mapped.

Using FEMA's Flood Insurance Rate Maps

FEMA flood maps are used by local governments, federal agencies, lending institutions, real estate brokers and insurance companies. These rate maps help determine whether homes need flood insurance as well as the premiums set for the National Flood Insurance Program, a FEMA program that sponsors flood insurance coverage for U.S. homeowners. Not all flood insurance is obtained through FEMA's program, but it does account for the large majority of active policies.

Hard copies of the maps should be available for review at your local planning, zoning or engineering office. You can also view the maps and request copies from FEMA online.

Be aware that the agency doesn't include dams in its maps when assessing risk, even though the threat of flooding from dams can be severe.

Enter a ZIP code or address into FEMA's map portal, zoom in until you locate your area, and click to view the map. If your residence is in an area beginning with the label Zone A or Zone V, you're in a high-risk area, and it is highly recommended that you obtain flood insurance. On the other hand, even the same neighborhood might have different flood zones because of factors such as elevation and topography. For example, here's a snapshot of an area of New Orleans near the Mississippi River.

This map shows the different flood zones and risks in New Orleans.

What flood risk factors should you consider?

Most floods are caused by heavy rain or melting snow that cannot be absorbed into the ground. Heavy rain and melting snow can also result in the overflow of lakes, rivers and streams, which can flood nearby areas. There isn't a minimum or threshold of rainfall or snowmelt that must occur to cause a flood. Flood conditions are dependent on a wide variety of circumstances.

The risk of dam failure and a resulting flood is a real one — there are more than 84,000 dams in the U.S. More than one-third of the dams are at least 50 years old, and 14,000 of those are considered a "high" hazard to life and property if they were to fail. That risk is not considered or shown on the flood maps of the Federal Emergency Management Agency.

For example, your home might not be in a flood zone mapped by FEMA. But if you live downstream of a dam, and depending on what the dam is holding back (maybe the full strength of a stream or a huge reservoir), your home could be at serious risk. The Hoover Dam in Nevada holds back 10 trillion gallons of water — enough to flood the entire state of Connecticut to a depth of 10 feet.

Construction and new development can change the natural drainage of water and potentially cause flooding. Not only are roads and sidewalks impermeable to water, but a new absence of trees and vegetation can also create areas where water flows faster and in a new direction.

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