During a flood event, structures and property can become damaged.  This is where the wonderful wide world of insurance comes into play.  Since you are probably fascinated with insurance and almost certainly have read your homeowner’s policy in a complete and thorough manner, then you know that flood insurance is something you generally purchase separate.

Let us discuss a few details you can quickly learn to impress your friends at parties..or become an insurance superhero and don’t let your friends get the wrong coverage. Whatever you intend to do with this information, just know that the basics below include highlights from the National Flood Insurance Program (NFIP), Summary of Coverage, FEMA F-679 publication.

These homes have been raised keep from being damaged during most flooding events.

These homes have been raised to keep from being damaged during most flooding events (or Aquaman is holding them up underwater).  Note the boat on the left side behind the tree.

What is deemed a “flood”?

A flood is “an excess of water on land that is normally dry”.  Flood insurance covers the physical loss caused by this flood. Some parts of the definition from the National Flood Insurance Program:

  • Must include two (2) or more acres, or;
  • Two (2) or more properties, at least one (1) of which is yours, from:
    • inland or tidal waters;
    • runoff;
    • mudflow;
    • collapse of land along a lake / body of water.

Basically, it says that your property must be smashed by water or the ground must collapse due to the water.    Now you have a flood, and your flood insurance policy can be activated.

Pick your lucky flood policy

There are three types of flood insurance policies.  Make sure you get the right one.

  • Standard Flood Insurance Policy Dwelling Form:  Used to insure one-to-four family residential buildings and single-family dwelling units in a condo building;
  • General Property Form: Used to insure five-or-more-family residential buildings and non-residential buildings;
  • Residential Condominium Building Association Policy Form: This one is self-explanatory.

Additionally, there are two types of flood insurance coverage.  The NFIP’s Dwelling Form offers coverage for:

  • Building property, up to $250,000, and;
  • Personal property, up to $100,000.

Ironclad flood policy facts

Flood insurance has a few items worthy of noting right away.

  1. Contents coverage must be purchased separately;
  2. Is not a guaranteed replacement cost policy.  Meaning flood insurance does not pay more than the policy limit;
  3. Pays the Replacement Cost Value (RCV) or Actual Cost Value (ACV) of actual damages, up to the policy limit;

What is the difference between Replacement Cost Value vs. Actual Cost Value? RCV defined is the cost, without depreciation, to replace that part of a building that is damaged.  ACV is the Replacement Cost Value at the time of the loss, less the value of the physical depreciation. Personal property is always valued at ACV.

Examples of what is covered

Here are some quick examples of items that are insured under Building Property coverage:

  • Insured building and foundation;
  • Electrical and plumbing systems, central air-conditioning equipment, furnaces, and water heaters;
  • Refrigerators, cooking stoves, and built-in appliances such as a dishwasher;
  • and more.

Here are some quick examples of items that are insured under Personal Property coverage:

  • Personal belongings such as clothing, furniture, and electronic equipment;
  • Curtains,
  • Food freezers and the food in them;
  • and more.

The flood finale

I am not an insurance agent.  As I stated at the top, I just gave some fast highlights from a FEMA Flood Insurance Coverage summary (some of the coverage totals may have changed with the Homeowner Flood Insurance Affordability Act of 2014).  If you want real details and pricing, you will need to contact an insurance agent.

Regardless, the keys to keep in mind are that flood insurance covers a building and personal property separately (so you must purchase both for full coverage), the term “flood” is well-defined, and that any payout on a claim will not exceed the policy limit. At least with those three key items, you now understand the very basics of flood insurance.

In the end, if you do become a caped crusader for insurance justice, no matter how agonizing and tiresome it becomes, sleep well with the knowledge that you are helping your friends or clients avoid purchasing the wrong coverage.  For a future post, I will work on some ways to impress your friends at parties with flood knowledge, just in case becoming a superhero seems like too much work.