Flood Insurance: Changing With the Weather

Mercer County Feels the Effects of Rainfall:
By Sarah Cammerzell,  Mercer Business Magazine

The record rainfall that we received on April 15, 2007 has brought the issue of flood insurance to the forefront of many Mercer County residents’ thoughts about their home insurance coverage. Many of the affected homeowners realized that their homeowners policy specifically excludes coverage for flood related losses. And many residents realized that they did not have to live in a flood zone to suffer the consequences of a significant rainfall. Floods can happen anywhere. In fact, flood is the most common natural disaster in the United States. If the question is “Who needs flood insurance?” the answer is, “Almost everybody.” All homeowners can educate themselves about floods and the coverage available.

Many homeowners do not purchase flood insurance for one of two reasons: one, they believe that if they live in a high risk area, they do not qualify for a flood policy, or two, they live in a low-risk area, have never had a flood loss and believe they do not need a flood policy. In both of these cases, the homeowners are incorrect. They should buy insurance now. According to the Federal Emergency Management Agency (FEMA), over 25% of flood claims are made by people living in moderate-to-low risk areas.

Homeowners should be aware that there is a 30-day waiting period before coverage will be effective, unless the coverage is required by a lender to make, increase, renew or extend a loan. In these cases policies are put into effect upon the purchase of the home. If you live in a Special Flood Hazard area or high risk area, your lender will require that you purchase flood insurance to protect the property.

If you live in a moderate-to-low risk area, you may qualify for a Preferred Risk Policy. This policy offers fixed amounts of coverage and is modestly priced. If you are a current homeowner in a lower risk area, you are subject to the 30-day waiting period.

We saw the impact that the recent rain had on our area. Rather than waiting until you hear the next ominous rain forecast, consider speaking to your insurance agent sooner rather than later.

What is Considered a Flood?

So now you see people living in areas ranging from high to low risk can be impacted by flood. Now it is time to see what is considered a flood and what coverages for your home and contents are included in a flood policy.

The average person’s definition of flood is often quite different than that used in a homeowners policy or flood policy. Many homeowners find two inches of water in their basement and say, “My basement flooded.” In many instances, this may not be the case.

Keep in mind that the definition of flood by the National Flood Insurance Program (NFIP) is very specific. Flood is defined as “a general and temporary condition of partial or complete inundation of two or more acres of normally dry land area or two or more properties (at least one of which is your property) from overflow of inland or tidal waters, unusual and rapid accumulation or runoff of surface waters from any source, or from mudflow.

THE NFIP FLOOD POLICY:

The flood policy offered through the NFIP offers coverage for the dwelling, contents and increased cost of compliance. The NFIP policy offers a single family homeowner a maximum of $250,000 in dwelling/building property coverage and $100,000 in contents coverage in the event of a flood. Contents coverage must be purchased separately from the dwelling coverage and separate deductibles apply.

Building property covered under the dwelling amount listed on the policy and personal property/contents covered under the NFIP policy are limited to specific items depending on their location.

Building property located below the lowest elevated floor (ie, basement) is limited to equipment and machinery in their functioning locations such as, electrical outlets and switches, fuel tanks, furnaces and hot water heaters, sump pumps, staircases, and drywall for walls and ceilings.

Building property coverage in the first floor of a building and above is expanded to items such as awnings, blinds, dishwashers, permanently installed carpeting, walk-in freezers, light fixtures, outdoor antennas, cupboards, bookcases, paneling and wallpaper, plumbing fixtures, ovens, refrigerators and wall mirrors that are permanently installed.

Homeowners should be aware that contents coverage in a basement level is extremely limited to the following items: washers and dryers, portable and window air conditioning units, carpets over unfinished flooring, non-walk-in freezers and the food in them, and portable microwave ovens and dishwashers. Personal property located above the basement level is expanded to include all other contents or personal property that one would expect to have coverage.

Similar to a homeowners policy, the NFIP policy has special limits on certain categories of personal property including artwork, photographs, collectibles, books, jewelry, furs and business property. To adequately cover items of this nature, a homeowner should speak to their agent about the options available for providing broad, all-risk coverage to these types of items.

NFIP policies with building coverage provide Increased Cost of Compliance Coverage. The policy may also pay up to $30,000 in Increased Cost of Compliance Coverage, which would cover the cost to elevate, floodproof, demolish, or relocate your home when damaged by flood as required by State or local floodplain management laws and ordinances.

Other Interesting Points:

• Customers of a flood policy may apply 10% of their building coverage to insure a detached garage when the garage is used solely for parking, access or storage.

• A flood policy cannot be cancelled in the middle of a term without a valid reason.

• Contents-only coverage is available for tenants.

Flood is a devastating and common disaster, even in Mercer County. If you want to learn more about national flood coverage call your agent or log onto one of these websites for more information:

http://www.fema.gov/business/nfip/

http://www.floodsmart.gov

Flooding/Disasters in the United States: Wind versus Water

The United States has seen the vast impact that a hurricane can have in coastal areas. The numbers to be paid out in Hurricane Katrina related claims alone will top the total paid after the four hurricanes in Florida the previous year. The major difference being that most of the damage caused by Hurricane Katrina was water related and in Florida, most of the claims were wind related. The NFIP awarded nearly $16 billion in flood claims in 2005. Many watched the debate between insureds and insurance companies as they tried to determine what caused the losses. Was it flood or was it wind?

If wind is the cause of the damage, your typical homeowners policy will provide coverage. Wind can be hurricane, tornado or similar terminology. Policies will often have a higher deductible if hurricane is considered the cause of loss.

There are other types of loss that can result from wind or flood. Mold is a devastating loss as a result of water damage. Even one inch of water in a home can cause serious damage. A typical homeowners policy will exclude mold remediation. It is possible to purchase sub-limits of coverage, often $10,000 in coverage to remediate damage to your home caused by a covered water loss. Higher amounts can frequently be purchased for additional premium.

Additional living expenses are incurred when you are forced to live outside of your home due to damage to your home caused by a covered loss. Your homeowners policy will provide limits of coverage for additional living expenses if you suffer a loss due to wind. There is no coverage for additional living expense under the NFIP policy or under your typical homeowners policy if the damage is caused by flood.

Homeowners and flood insurance policies are complicated and often offer a range of coverages. Coverages offered by one insurance company can vary greatly from the next. I recommend that everyone engage their agent to make sure that they understand what risks they are subject to and what coverages they currently have and have access to purchase. A homeowner on the top of a hill and a homeowner next to a river can both suffer the devastating effects of flood.

Don’t be caught without the coverage you need.

 * The information contained in this article is for informational purposes only and is a brief synopsis of coverage provided by the NFIP policy. Please contact the NFIP or your insurance agent for a complete review of policy terms and conditions.