Do all homeowners face the risk of flood damage?

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Many people assume that their standard homeowners insurance policy covers flood damage to their home and personal possessions, when in fact, flooding is categorized as a special risk by the insurance industry.

Most standard homeowners policies specifically exclude coverage for damage caused by floods.

Some homeowners, on the other hand, know that flood insurance must usually be purchased as a separate policy, but make a conscious decision to go without it. They may assume that they face little risk because they don’t actually live in a floodplain.

That’s unwise: You don’t have to live by a river, lake or ocean; flooding can result from sudden downpours, prolonged rainfall or rapid snowmelt, as well as water-main breaks and more. In the long run, the average American home is statistically more likely to experience a flood than a fire.

Homeowners may assume that they face little risk because they don’t actually live in a designated floodplain.

No matter the reason, far too many homeowners remain uninsured for this very real risk. According to the Insurance Information Institute, an astonishingly low 13 percent of American homeowners surveyed had active flood insurance policies. In short, flood insurance remains a source of confusion for many because a standard homeowners policy usually covers certain, but not all, kinds of weather-related water damage.

A typical homeowners policy will protect against water entering through a window or against damage to a roof in a storm. However, it does not provide coverage for rising water entering the home. Certainly, there is some help available: A basic, no-frills flood insurance policy, backed by the federal government’s National Flood Insurance Program (NFIP), may be purchased in most communities. However, this federal program is limited in scope, with reimbursement limits up to only $250,000 for a home’s structure, and $100,000 for personal possessions.

This is why more robust coverage than the NFIP’s is advisable for owners of high-value homes. Fortunately, some insurers, particularly those specializing in coverage for high net worth individuals, underwrite their own private flood policies. These policies may have fewer restrictions on just what constitutes a flood, and may offer features such as:

  • Higher limits and full-replacement-value coverage for personal possessions
  • Full-replacement-value coverage available for second homes
  • Costs to comply with any law or ordinance requiring homeowners to repair, rebuild, elevate, flood-proof or demolish homes after a covered flood loss, including stabilization, evacuation or replacement of the land
  • Coverage for finished basement areas
  • Additional living expenses incurred through the need to reside elsewhere

Additional protection is also available in the form of excess flood insurance, with even higher loss-payment limits for your home and possessions. A trusted insurance advisor is the best guide to the flood coverage options available and can help you decide which is appropriate for you.

This article was originally published in the February/March 2016 issue of Worth.

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