DEFINITION of “Flood Insurance”
Flood insurance is a financial tool that protects property owners from water damage to the structure and contents of their property. While flood insurance can be purchased from many different insurance companies, all policies are federally regulated, so the same policy costs the same amount regardless of which company it was purchased through.
CANCEL ‘Flood Insurance’.
Since typical hazard insurance policies do not cover flooding, the user must purchase a separate policy to protect against flood damage. For properties in high-risk areas, lenders sometimes require mortgaged homeowners to carry flood insurance to protect the structure. It is the homeowner’s responsibility to purchase additional coverage for the contents of the property such as furniture and clothing.
Flood insurance is available for homes and commercial properties. Homes financed by a government-backed lender require flood insurance if they are located in a special flood hazard zone. Renters can also purchase flood insurance policies that cover their personal property in a single-family home, apartment, condominium, or commercial property.
The federal program’s Congress
passed legislation in 1968 that established the National Flood Insurance Program (NFIP). The NFIP makes flood insurance available to all homeowners, renters, and business owners in participating communities. These communities must adopt and enforce policies that meet or exceed Federal Emergency Management Agency (FEMA) requirements to participate in the program.
Flooding occurs regularly in all 50 states. A few inches of flooding in a home can cause thousands of dollars in damage. For people in FEMA’s Special Flood Hazard Areas, flood damage is greater than fire damage. However, 20% of flood insurance claims come from properties outside of these locations.
Buildings and Contents
Flood insurance applications all include building and contents coverage, but contents coverage is optional. Declining contents coverage leaves any personal property in the building uninsured in the event of a flood.
Commercial properties are not protected from flood damage and losses are often higher than residential floods. Flooding a business can result in devastating financial losses, and more than 25% of businesses that close due to flooding do not reopen.
Most flood insurance policies include a 30-day waiting period between the purchase of the policy and the start of coverage.Purchasing a policy due to an impending storm or because of nearby flooding is not likely to cover the immediate hazard.