Not All Flood Policies Are Equal

FEBRUARY 6, 2024

More than 50 years ago in the U.S., Congress entered the flood insurance arena by passing the Flood Insurance Act of 1968. This legislation established the National Flood Insurance Program (NFIP).

Unfortunately, flood is a costly natural disaster. Global warming and severe weather events only increase frequent, billion-dollar losses. The NFIP’s offerings are limited and often leave homeowners with expenses to pay out of pocket. Homeowners therefore need to know their risk and proactively take steps to manage it.

What Is Flood?

Most homeowners policies specifically exclude flood coverage. Before determining if they need flood insurance, homeowners should understand what a flood is.

FEMA’s definition of flood is: “A general and temporary condition of partial or complete inundation of two or more acres of normally dry land area or of two or more properties (at least one of which is your property).”

Consider the following two claim scenarios:

• A bathtub overflows and damages a hardwood floor. This is not a flood claim. The homeowners policy may cover this loss.
• A rainstorm drops catastrophic amounts of water onto a community. Multiple homes take on two feet of water. The homeowners policy would not cover this claim. The homeowners would need a flood policy in order to have coverage for the loss.

Also consider that a lender may not require a homeowner to purchase flood insurance. Does this mean the home will not flood? No — when it comes to flood insurance, follow this rule: If you have a zip code, you should have flood insurance.

Flood Insurance Options

The NFIP program is not the only option for homeowners. Private flood insurance is available and may be less expensive than an NFIP policy. Further, private flood policies may offer broader coverage depending upon the risk. According to Kevin Thomas, Personal Risk Practice Leader and Partner at USI Insurance Services, several coverages not included with the NFIP may be obtained through private flood carriers, such as:

• Replacement Cost Loss Settlement — The NFIP pays claims on an actual cash value basis, whereas private flood coverage pays claims on a replacement cost basis. This allows homeowners to recoup the full cost to replace or repair damaged property without reducing the claims payment due to depreciation.
• Contents in Basements — Federal flood coverage excludes almost all contents in the basement. Private flood insurance carriers can provide coverage for contents in a basement, usually subject to a sublimit. 
• Loss of Use — When a flood event occurs and displaces residents from their homes, additional costs are incurred for temporary lodging while the residence is being repaired. Federal flood insurance does not cover these expenses. Private flood insurance carriers can offer loss of use coverage, which helps homeowners recoup some out-of-pocket expenses created by displacement. 
• Rebuilding to Code — The NFIP policy provides $30,000 for modifying a covered home to meet flood plain regulations after a substantial loss. Private flood insurers offer higher limits. Homeowners may be unaware they are subject to local flood plain management regulations. These regulations result in increased costs to stay in compliance during the repair process.
• Single Deductible Option — The NFIP has separate deductibles for dwelling and contents coverage. Private flood insurance may include a single deductible for both coverages. The single deductible option simplifies the claim process while expanding coverage.

How to Mitigate Flood Loss

As the intensity of heat and rainstorms continues to grow, consider implementing the following risk management strategies.  

• Raise your home on stilts or piers: This is an expensive option; however, raising your home above base flood level will substantially protect your home from rising water.
• Install foundation vents or a sump pump: Foundation vents allow water to flow through your home. This provides an outlet for flood water and relieves pressure on your walls and windows. 
  • A sump pump with backup battery is a great option to pump flood water out of the basement. If you lose power, your sump pump will continue working. The average cost of a sump pump is approximately $1,200, with installation running between $600 and $1,500. National companies such as Roto-Rooter and Sump Pump Geeks are available to assist.
• Apply coatings and sealants: Apply coatings and sealants to foundation, walls, windows and doorways to prevent flood water from seeping through cracks of the home.
• Raise electrical outlets and switches: Raise outlets, switches, sockets and circuit breakers above base flood level to avoid significant electrical damage.
• Install gate valves on your sewer pipe: Install gate valves to protect your home against sewage backup. 
• Grade your lawn away from the house: Use a heavy soil containing clay or sand to regrade your lawn so water runs off the property into a gutter versus having water collect around the home. 
• Leave space between mulch and siding: Leaving space between your mulch and home will prevent the siding from rotting. Failing to remediate rot allows water intrusion into the home.
• Point your downspouts away from your home: Direct gutter runoff away from the home to avoid pools around the home and leaks into the basement.