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Flood Insurance Basics, Part 2

In the first installment we discussed how flood insurance is rated and how it is required when mortgaging your home, now let’s see what it is covering and if you really want/need it.

The definition of flood is important: If your loss does not meet the definition, there is no coverage under your flood policy! A flood is a general inundation of water covering 2 acres or two properties. This can be from rising seas, heavy rainfall, snow melt, etc., but not from your plumbing system. (a pipebreak is a homeowner’s policy loss)

Both your home and contents are covered for flood damage, but, get this: the policy excludes coverage to contents in the basement! So if your home gets flooded and the first thing that gets flooded is the basement, your furnace and hot water heater damaged by the water are covered. If you have a washer/dryer, it’s covered. That’s about it. You have a finished basement? Well, the good news is you finished it because it’s a dry basement….but the bad news is flood insurance doesn’t cover the furniture, fixtures, walls, carpeting, and all the stuff. So consider the storage aspect of the basement as the second best place to put something not needed for a while; the best place to store something is in the attic.

You no doubt have replacement cost coverage on your home owner’s policy for building and contents, but flood insurance only provides replacement cost if the residence is a primary residence. A secondary home gets replacement cost less depreciation, known as “actual cash value”.

The maximum building coverage is $250,000, and the maximum contents coverage is $100,000. So the program should be considered a minimal protection against a risk that is not commercially insurable at reasonable prices. And according to friends in Florida, you have to fight to get paid. That is a change in the way adjusters get paid. FEMA used to pay adjusters a % of the covered loss so when we had the “No Name” flood of Oct. ’91, everyone was overjoyed about their claims. Now, it seems, they are paid by how much they save FEMA.

Standard policies cover homes in a “high risk” area. Preferred policies cover homes in a “low risk” area. Flood losses do occur in low risk areas, especially floods from snowmelt or storm drain back up, so it is worth considering the topography of your property and the surrounding area and imagine 12” of water in the street. If that would cause a problem in your home, try to quantify the damage it would cause and if flood would pay it, get a quote so you can see if it is worth the worry. Don’t forget that you can find a lot of info on the FEMA website: fema.gov, then click on flood on the right side. Your homeowner’s agent can advise you on any changes you might want to make in your coverage and verify that the rating is correct on your home. In sum, understanding your risk, estimating your possible loss and weighing the options will lead you to a better informed decision about flood insurance.

John Kramer

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