Flood insurance: costs, coverage and quotes for property investors – Accounting – 2021
How to submit a flood insurance claim
1. Notify your flood insurer
2. Document flood damage
3. Complete the loss form
Related types of insurance
Flood insurance covers property damage specifically caused by flooding. A mortgage lender usually requires flood insurance for a property located in an area that has been declared a flood zone by the Federal Emergency Management Agency (FEMA). Flood insurance policies are provided by private insurers and typically pay $700 per year.
How flood insurance works
Flood insurance is funded by the government through the Federal Emergency Management Agency (FEMA), but they do not directly write guidelines. Instead, it obtains policies through flood insurance providers. Flood insurance coverage is the same regardless of the flood insurance provider.
This is because they are federally regulated. Building coverage and contents coverage have separate coverage limits. However, most flood insurance providers will allow you to choose your deductible, which is the only flood insurance cost you have control over.
Flood insurance is required by federal law in certain high-risk flood zones. Flood insurance is not a substitute for a homeowners policy; it is a separate policy offered in addition to a typical homeowners insurance policy. Flood insurance typically includes structure and contents in two separate policies, each with maximum limits set by FEMA. Some flood insurance providers offer additional coverage if they want to eliminate the covered limits.
Flood damage and water damage are often confused and are not the same thing. Flood damage is caused by large amounts of water accumulating around a building. The ground cannot support the water and it enters your home. Flood damage is usually caused by water flooding.
However, water damage can be caused by a leaking pipe or overflowing toilet and is completely different. Water damage may be covered under homeowners policies, but flood damage is only covered under flood insurance policies.
What is covered by flood insurance
Flood insurance typically covers home and contents damage caused by rising water from any type of water, typically a stream, lake, river, bay or ocean. Flood insurance does not cover the replacement of your contents. Instead, it covers the actual cash value of an item.
This means it covers the cost of replacing or repairing the item at the time of loss, minus its physical depreciation cost. Each insurance company has different methods for assessing the actual cash value of an item, so the exact number should be discussed with your provider.
Another important thing to note about flood insurance is that loss of income and living expenses are not included, so if tenants have to pay out to repair flood damage, they will not be reimbursed. However, renters insurance typically covers loss of income, so if you own an investment property in a flood zone, you will usually need both types of insurance.
Flood insurance coverage usually only covers a portion of the main building and the attached garage. In fact, the lender may allow you to exclude detached buildings if they are not used as a residence (i.e. no living quarters, bathroom or kitchen). This can be a good thing as it can result in lower premiums. However, it’s best to check with your insurance provider to see if it makes sense to use the exclusion.
