What is Flood Insurance

What is Flood Insurance

Many homeowners do not realize that a standard homeowners insurance policy typically provides no coverage for flood and sewer backup, but what is flood insurance?

If you purchase a named peril homeowners policy, the list of named perils will normally not include flood and sewer backup.   If you purchase “special form” homeowners coverage, your policy will typically contain a “water damage” exclusion, which excludes  flood and sewer backup.

The relevant Homeowners Policy exclusion typically reads something like the following:

We do not insure for loss caused directly or indirectly by any of the following. Such loss is excluded regardless of any other cause or event contributing concurrently or in any sequence to the loss. These exclusions apply whether or not the loss event results in widespread damage or affects a substantial area.

Water Damage

Water Damage means:

  1.       Flood, surface water, waves, tidal water, overflow of a body of water, or spray from any of these, whether or not driven by wind;
  2.       Water or water-borne material which backs up through sewers or drains or which overflows or is discharged from a sump, sump pump or related equipment; or
  3.        Water or water-borne material below the surface of the ground, including water which exerts pressure on or seeps or leaks through a building, sidewalk, driveway, foundation, swimming pool or other structure;

caused by or resulting from human or animal forces or any act of nature.

Direct loss by fire, explosion or theft resulting from water damage is covered.

Water damage to property is excluded even if weather conditions contribute in any way to produce the loss.

A close reading of this exclusion reveals that you pretty much have no coverage for loss or damage by flood, sewer backup, or seepage.   However, you likely do have coverage for fire or explosion resulting there from.

How Do I Cover My Home Against Flood?

The sample water damage exclusion above had three sections to it.  Section a. is typically referred to as the “flood” exclusion.   Section b. is typically referred to as the “sewer backup” exclusion, and section c.  is often referred to as the “pressure, seepage and leaks” exclusion.

We will address the three parts of this exclusion separately:

Flood Coverage

A number of insurance companies offer their own flood coverage policy or flood coverage extension.  These flood forms are not all the same, so you will need to read them to see what you are actually buying.   Flood coverage can include the rising of waters beyond their normal boundaries, the inundation of normally dry lands from excess rains, sewer backup, and possibly additional causes of water damage.   If your home happens to be in a known flood area (federal flood zone), your insurance company might not be willing to offer the coverage.  In such cases, the National Flood Insurance Program (NFIP) may be your only option to secure coverage.   Click here for more information on the National Flood Insurance Program, which is commonly available through your local insurance agent.

Under the Federal Flood Program, you may be able to obtain coverage for Flood, and resultant Sewer Backup and Pressure/Seepage which results from a flood.

Sewer Backup or Pressure/Seepage losses may be covered under a federal flood insurance policy if they occur in conjunction with a general and temporary condition of flooding in the area. Surface flood waters must be the cause of the sewer backup, seepage or hydrostatic pressure that results in a loss. The loss must have occurred no later than 72 hours after the flood has receded and the policyholders’ coverage must be at least 80 percent of replacement cost or the maximum amount of insurance available under NFIP in order to be covered under the policy. Consumers should consider purchasing a separate sewer backup endorsement on their homeowners insurance policy to cover sewer backup that is not associated with flooding.

When trying to determine whether or not you should purchase flood insurance on your home, remember that flood is not just the overflow of a body of water, and that the coverage also usually applies to surface water.   You could be at risk even if you live nowhere near a river or other body of water.  If your home happens to be hit by a freak 10 inch rainstorm, you may wish you had flood coverage.  If your home is in a low lying area, or on a hillside, it may be particularly susceptible to surface water losses.

Sewer Backup Coverage

Sewer backup is generally available as an optional endorsement.  It usually covers water which backs up through sewers and drains.  However, sewer backup endorsements vary tremendously.  Some will not cover water that backs up unless that backup is caused by an actual blockage in the sewer system.   In such a policy, you would not have coverage if the sewer simply backed up due to inundation from heavy rains.   Most sewer backup policies do not cover sewer backup that results from the rising or overflow of a body of water.   So, if your sewer backs up because of the nearby river flooding, you will likely have no coverage for that sewer backup loss unless you also purchased separate Flood coverage.

Usually, sewer backup coverage is offered with a sublimit of between $5,000 and $100,000.   If you have a lot of personal property in your basement, or have a finished basement, a small sewer backup loss could end up costing a lot more than you might imagine.

In order to avoid the potential for mold growth following a sewer backup loss, you may need to remove your carpet, remove the bottom few inches of drywall and insulation, deploy commercial dryers, spray fungicides, and remove and reset certain fixtures.  Even if you have no damage at all to your personal property, the costs can add up quickly.

Hydrostatic Pressure, Seepage And Leaks Coverage

Generally, coverage for losses resulting from hydrostatic pressure, seepage, and leaks is not available for purchase by homeowners, except in the limited circumstance mentioned above where such loss results from an actual flood and you have purchased flood coverage.  If you own a home, or are considering the purchase of a home, where you see evidence of cracking, bulging, seepage, or leakage, it is highly advisable that you have an inspector come out to determine what the cause is and what the best course for preventing further damage may be.

Special Note On Windstorm

While windstorm coverage is normally included in quality homeowners policies, it is not uncommon for insurers to exclude the perils of windstorm and wind blown water in areas that are highly susceptible to windstorm loss.  In Florida and in coastal areas of Alabama, Louisiana, Mississippi, North Carolina, South Carolina, and Texas, insurers may exclude windstorm and ask you to secure coverage through the state-sponsored wind insurance program.   Your independent agent can help you navigate these waters.

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Home Insurance Coverage Options

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Jim Ketterson is an insurance expert with more than 25 years of experience in the industry. He has served as a President of an insurance company, an insurance underwriter, and has held various roles in insurance company product management. He has his Chartered Property Casualty Underwriter designation and a MBA in Finance. The information he offers in his posts is general in nature and may not be appropriate, accurate, or applicable in all situations. Before making any important insurance decisions, you should seek the advice of a qualified insurance agent and discuss the particulars of your individual situation. Follow Jim on Twitter @MNinsurancePro

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