Two Types of “Water Damage”
A standard home insurance policy will cover losses caused by water that accumulates in the home resulting from the accidental discharge of a system of appliance, such as a broken hose or valve. That same policy will not cover losses caused by water that accumulates as a result of the overflow of a body of water or runoff of surface water.
Common Causes of Flood
Floods often result from torrential rainstorms and hurricanes. Floods also commonly result from snow melt. Floods also result as a side effect of development- such as road construction or a new housing community- that alter storm water drainage patterns.
Who is at Risk?
Flood insurance is not just for people living or working on the coast. According to the National Flood Insurance Program (NFIP), 31 percent of the properties damaged by floods are located outside of a special flood hazard area as designated by FEMA. The NFIP reports that floods happen in all 50 states and that floods are the second most common cause of property damage behind fire.
Property owners are often mislead into believing that flood insurance is only available for properties that are located in a special flood hazard area or “flood zone.” Unfortunately, this myth has caused many property owners to suffer from uninsured flood losses that could have been easily covered. The only requirement is that the property is located in a “participating community.” This could be a township, municipality, city or county that has agreed to participate in the NFIP.
Preferred Risk Policy (PRP)
The NFIP offers the PRP for homes and businesses that are not located in a special flood hazard area and do not have a history of flood claims. The PRP allows eligible buyers the opportunity to purchase flood insurance at a pre-determined rate. PRP rates are intended to remind property owners that regardless of where the property is located the aforementioned data is proof that it’s still a good idea to purchase flood insurance.
A Few Unique Features of Flood Insurance
It is important to remember that a flood insurance policy is a separate policy from your home, condo, or business insurance. This means that flood insurance is subject to its own terms and conditions. Following are a few of the unique features:
Waiting Period
There is a 30-day waiting period from the date you first purchase flood insurance to the date that policy takes effect. This is designed to prevent the purchase of coverage for losses in progress. The 30-day waiting period also applies to changes made to an in-force flood policy. For example, if you currently carry $200,000 in coverage for your home and decide to raise that amount to $250,000, you must wait 30 days before the change will take effect.
The waiting period does not apply to a renewal policy. There are two exceptions to the 30-day waiting period: the first is if the policy is required in conjunction with the closing of a loan. The second is for property owners that previously were not required to purchase flood insurance but are now being told they must as a result of a new map from FEMA indicating that property is now located in a special flood hazard area.
Two Deductibles?
Let’s say a flood causes $50,000 in damage to your home and $10,000 to contents. Your policy includes a $1,000 deductible. That deductible will apply once towards the recovery of your home and once towards the recovery of your contents. This means it’s possible you will pay the deductible twice for the same loss: once for the dwelling and once again for contents.
Note that lenders who require owners to purchase flood insurance typically only require insurance on the dwelling or building and do not require flood insurance on contents. Owners should carefully consider the cost to repair or replace contents before choosing to forgo insuring them.
Other Structures
An important feature of your home insurance is the inclusion of coverage for certain types of other structures such as a detached garage or pool house. The only other structure that the flood insurance policy will extend coverage to is a detached garage. Other structures may be eligible for coverage under a separate flood policy.
No Additional Living Expenses
An important feature of your home insurance is the ability to collect money from the insurance company to pay living expenses while your home undergoes repair. These expenses may include hotel, food and other expenses. Unfortunately, the flood insurance policy offers no coverage for additional living expenses- such costs must be paid out-of-pocket.
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