Hurricanes and Flood Insurance: What Homeowners Should Know

Many homeowners learn the hard way (or the wet way) that their homeowners' insurance doesn't cover property damage caused by hurricanes and floods. If you live in a potentially affected area—which could include everything from a home on the coast near a fragile levee that sees frequent floods to one downhill from a stream that hasn't flooded in years—you probably should buy a separate flood insurance policy to cover your home and its contents.

Here's how to get flood insurance, and what it will and won't cover. (For general information about homeowners' insurance, read Homeowners' Insurance: What You Need to Know to Be Fully Covered After Damage or Loss.)

What's the Difference Between a Flood and Other Water Damage?

A flood, to summarize the definition provided by the National Flood Insurance Program, means that two or more acres of normally dry land or two or more properties (one of which is yours) have become partly or completely inundated with water, as a temporary condition. The water source could be:

• overflow of inland or tidal waters
• unusual and rapid accumulation or runoff of surface waters from any source
• mudflow, or
• collapse or subsidence of land along the shore of a lake or similar body of water due to erosion or undermining caused by waves or water currents exceeding anticipated cyclical levels.

Notice the external, and usually natural aspect of this definition. It would not include water damage from sources literally closer to home, like burst pipes, condensation, water from HVAC system, and so on.

Where to Find Flood Insurance

You can purchase flood insurance from your broker or agent through the National Flood Insurance Program (NFIP), which is managed by the Federal Emergency Management Agency (FEMA). Flood insurance is available to any homeowner who lives in one of the many NFIP-participating communities (which have agreed to pass and enforce certain storm water and flood plain management laws).

If you need an agent, call the NFIP at 888-379-9531 or visit its website at www.floodsmart.gov.

Get Flood Insurance Coverage for Property and Contents

A flood insurance policy through the NFIP can provide maximum coverage of $250,000 for residential property and $100,000 for contents. (Property and contents coverage must be purchased separately, even though they may form part of the same policy.) How much you'll pay for premiums depends on numerous factors, such as location and the deductible you choose.

If you want additional coverage, you can purchase excess flood insurance from private insurers.

If you buy a home in a designated high-risk flood zone and get a mortgage loan from a federally regulated or insured lender, your lender must require that you purchase flood insurance.

If you live in a zone that's been designated moderate- or low-risk, you don't need to buy flood insurance for your lender's sake—but might want to do so anyway, especially if your own observations indicate that the official designation on your area are out-of-date (a common problem). According to FEMA, over 25% of all flood insurance claims come from areas with low-to-moderate flood risk. The good news is that you'll qualify for a preferred-risk policy, the premiums which are on the low side (for both property and contents).

Here's what flood insurance pays out for each type of property covered:

• Contents. Flood insurance pays actual cash value (not the most generous amount; it means the cost to replace the damaged or lost property based on its actual, depreciated value as used goods).
• Property. You can opt for replacement cost coverage (the cost to replace the damaged or lost property with new property, without regard to depreciation) if you're insuring a single-family home that is your primary residence. Available coverage is at least 80% of the full replacement cost of the building (an amount that's set in advance for your property) or the maximum available under the NFIP.

Take a Closer Look at What Flood Insurance Doesn't Cover

A good flood insurance policy can be a financial lifeboat following a destructive event such as a hurricane. But as alluded to above, flood insurance doesn't cover everything. Before buying, you should know about the following key restrictions and limitations, which are specific to flood insurance.

Water Must Have Come From Outside Your Home

If something breaks or malfunctions inside your home—for instance, pipes freeze and burst or a toilet overflows—and this leads to flooding, your flood insurance policy won't apply. However, your homeowners' policy should cover these types of losses. Ask your agent or broker to give you the lowdown.

Swimming Pools and Landscaping Aren't Covered

If something goes wrong with a swimming pool on your property and this causes your home to sustain flood damage, your flood insurance policy won't apply. Also, don't expect reimbursement for flood damage to flower beds, vegetable gardens, trees, or other landscaping on your property. (Again, check the terms of your homeowners' policy to see whether it will provide coverage.)

Small Floods Don't Count

To be considered a flood, the water that causes damage must have covered at least two acres or have affected at least one other property. Also, if your home sustains any mold or mildew damage that you could have prevented from occurring, your policy won't cover dealing with the resulting damage.

Living Expenses or Business Interruption Aren't Covered

Your flood insurance policy won't pay you for any living expenses you might incur (such as renting a hotel room until your property is fixed). Also, you won't be able to recover any financial losses caused by business interruption (if you operated a business out of your home) or any other loss of your home's use.

Money and Important Papers Aren't Covered

Your policy won't pay for the value of any currency, precious metals, stock certificates, and other valuable papers that get destroyed in a flood.

Improvements and Most Contents in Below-Ground Areas Aren't Covered

Your flood insurance policy won't cover any improvements you've made to your basement, such as finished walls or floors. Also, almost all personal property (including clothing, computers and electronic equipment, kitchen and office supplies, and furniture) located in basements or other areas of your home below the lowest elevated floor aren't covered.

If You Want Flood Coverage, Don't Wait Till a Disaster Is in the Forecast

Unlike other types of insurance, flood insurance coverage doesn't kick in on day one. With few exceptions, you must wait 30 days after first purchasing a flood insurance policy before it will take effect. So, the longer you delay looking for coverage for your home, the greater your risk of suffering a loss before the policy is actually in place.

Even if the next hurricane season is months away, you could still benefit from getting a flood insurance policy sooner. In addition to damage from hurricanes, a flood insurance policy will also protect you from losses from other causes, such as heavy or prolonged rainstorms, coastal storm surges, snow melt, clogged storm drainage systems, levee dam failures, and mudslides.