Don’t Go With The Flow – Consider A Flood Insurance Policy

You’ve likely heard of a story or two in which someone lost valuable property due to flood damage. Maybe one of the stories was yours. . . this past July when Arizona broke rainfall records. If you did experience flood damage, did you have a flood insurance policy in place?

Reuters reported in February 2021, the cost of flood damage nationwide was approximately $17 billion annually between 2010 and 2018, according to testimony from Federal Emergency Management Agency (FEMA) representative Michael Grimm.

Flood insurance is a critical part of keeping your home and valuables secure.

What Is Flood Insurance

According to Phocus Insurance Companies, a Rosie-Certified Partner, FEMA is responsible for issuing most flood insurance policies. Private insurance companies work with FEMA in areas of the country that are prone to flooding and offer flood insurance coverage to homeowners via the National Flood Insurance Program.

Don’t assume that your whole home comprehensive policy has you covered. Phocus tells us this is seldom the case. Your home insurance likely contains a water damage subsection. Many homeowners assume that all water-related damage is covered. That is not so. Sudden and unexpected water, such as the washing machine breaking, may be covered under your insurance. If the water damage is due to negligence or a catastrophic event such as floods, you’ll find yourself footing the bill.

A flood is defined as 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) from an overflow of inland or tidal waters, unusual and rapid accumulation or runoff of surface waters from any source or mudflow.

Flood Insurance Detailed

Before we get into the details, let’s go over a few terms that are important to understand when reviewing your insurance policies.

Actual Cash Value (ACV) is the value of the item at the time of loss, depreciation over time included. Items that are assessed or adjusted at ACV include appliances or carpeting, with carpets having the potential to lose 10% to 14% of their value annually.

Replacement Cost Value (RCV) is the cost to replace the item or part of your home, not including depreciation. Three conditions must be met before having an item fall under RCV guidelines.

The building must be a single-family dwelling.
The building must be your primary address at the time of loss (meaning you have lived there at least 80% of the year.)
Your building coverage is at least 80% of the replacement cost of the building or the maximum value available for the property under the NIFP.

A standard flood insurance policy, known as a single peril (flood) policy, pays for direct physical damage to insured property up to the replacement cost, actual cash value of the damages, or the policy limit of liability, whichever is less. Flood insurance is also not a valued policy. For example, a valued policy pays the limit of liability when the homeowner experiences a total loss. For example, if your home is destroyed by a fire and it costs you $200,000 to rebuild, but your homeowner’s insurance is a valued policy with a $250,000 limit, you’d receive the $250,000. Flood insurance will pay the actual cash value of damages or the replacement. Additionally, flood insurance is not considered a guaranteed replacement cost policy. Another example: your $200,000 home burns down and costs just as much to rebuild it. The liability on your guaranteed replacement cost policy was only $150,000. Therefore, you would receive the full $200,000. That is not the case with flood insurance which will not pay above the policy limit.

A comprehensive list of items covered on your property insurance vs. flood insurance can be found at www.floodsmart.gov.

The Cost of Flood Insurance

Understanding the cost of flood insurance can be complicated. Many factors determine the final cost of your premium including flood risk, type of coverage, location, design and age of the structure, and location of the structure’s contents.

On average, LendingTree estimates that flood insurance in Arizona runs $720 annually ($60 a month) with 1.58% of households covered. This is below the national average of $958 per year. FEMA and NFIP offer an online tool to help you figure out the estimated costs.

Don’t Ride It Out

Paying the annual premium pales in comparison to the cost of water damage and loss of valuables. Contact your insurance agent to review your insurance policies.