Flood Insurance Coverage: Cost-Benefit Analysis

While fires get all the attention in the media with houses going ablaze, anybody with a waterfront property knows how devastating a flood can be!

Believe it or not, floods even drive roughly 75,000 people from their homes every year in the US, making them a serious threat. Luckily, there is insurance for that!

Let’s talk about flood insurance coverage, what it can do for you, and if it’s worth the money.

The Basics Of Flood Insurance Coverage

There are important things to know for any insurance, and flood insurance is pretty straightforward. It is a separate policy from your home insurance that protects your property if they are damaged in a flood.

The math is simple. If you are looking to purchase flood insurance, the rate will increase if your home is at a higher risk of flooding, and it will decrease if your house is of a lower risk.

For example, if you live right on the beach in South Carolina where hurricane season is often unforgiving, you will pay a higher rate than somebody living at the top of a hill in Vermont.

FEMA

The Federal Emergency Management Agency, or FEMA, is the government agency responsible for damage control when it comes to things like floods. In fact, most flood insurance companies are backed by an insurance program through FEMA, making them rather safe and reliable.

When the time comes for a large-scale natural disaster, FEMA covers some of the costs. Ask your potential insurer if they are covered by FEMA’s natural disaster insurance policy.

Is Flood Insurance Necessary?

That really depends on your needs. If you’re in a high-risk area, yes, your rates may go up. However, you are a lot more likely to need to protection for your home and belongings, making it a potentially worthwhile investment.

Nobody is safe from floods. All 50 states have experienced multiple floods in the past, and they’re almost guaranteed to happen again. FEMA claims that 20% of all claims are from moderate to low-risk regions.

Whether you’re in a high-risk area or not, there is a certain peace of mind that comes with flood insurance. The main question is if it’s worth the cost.

What It Covers

While different insurance plans will cover different things, there are some general universalities with flood insurance. Just make sure you talk to the insurance company when you get a quote and go through the details so you know the full extent of the coverage.

Building

Flood insurance is meant to protect the physical structure of your home, (like the flooring, walls, and frame) as well as its features. This includes the electrical grid, plumbing and heating systems, and attached cabinets or storage space.

Even your carpeting and paneling will be covered. Basically, any permanent fixture attached to the building. Maximum coverage is typically up to $250,000, but this varies between policies.

Personal Belongings

Your appliances, like your refrigerator, washer, dryer, and stove, should be covered under personal belongings.

Your electronic devices like your television will also be covered, along with certain valuables like art, based on the actual cash value estimate, with depreciation taken into account.

On average, your personal belongings will be covered up to around $100,000, but again, this varies by policy.

What It Doesn’t Cover

This is the question you should be asking for any insurance policy, and it should be at the top of your mind when choosing one. Flood insurance is very specific to floods, leaving a lot of related damages out of the coverage.

For example, living on a waterfront property (or otherwise high-risk) comes with a lot of moisture. Moisture brings mold and mildew into your home, and if it damages your property before the flood and it could have been avoided by the owner, any belongings already damaged by this prior to the flood will not be covered by insurance.

Hidden Costs

Like with most things, there are hidden costs and forgotten losses that may be associated with a natural disaster like a flood, and many will not be covered by flood insurance.

Temporary living expenses after the flood, like a hotel or a trailer while the house is being repaired, will also not be covered in most cases. Financial losses caused by business interruption after the flood is the responsibility of the business owner.

Currency, precious metals, and valuable papers (stock certificates, government bonds, etc.) will not be covered.

Other Belongings

While we mentioned that many personal belongings should be covered in your home, you have read the fine print. Any property outside of the building, like plants, trees, wells, decks, cars, and swimming pools is not covered by flood insurance.

Unless you have a lot of tools you keep in your shed, your car will likely be the most valuable thing outside your house, so make sure you find out if your car insurance covers flood damage.

Ask for more details before shopping for a policy. If you have an external garage filled with valuables, or a large deck or patio, ask lots of questions about the potential coverage before making a decision.

Cost-Benefit Analysis

Flood insurance coverage is very specific to floods damage only, which needs to be taken into account. Overall, it can save you a small fortune if you live in an area that’s prone to flooding. If you don’t live in such an area, your policy should be fairly cheap, making it an affordable option.

Really, it’s all about you and your needs. If you want some peace of mind over your house and (most of) your belongings, then find the right policy for you!

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