Flood insurance provides coverage against some types of water damage to the building and the contents of the premises. Statistics show that structures built in high risk flood zones have a 25% chance of flooding during a 30 year mortgage period. For this reason, homes and businesses with mortgages obtained from federally regulated or insured lenders are required to purchase flood insurance if the building is in a high risk flood area. Though the requirement does not extend to moderate to low risk flood areas, it is worth noting that one in five flood damage claims comes from moderate to low risk flood areas.
As with most insurance policies, flood coverage exists to transfer some or all of an events financial impact across a pool of subscribers. The costs of premiums are determined by the location of the building, its proximity to a flood zone, the age and design of the premises, and the quantity and type of coverage sought.
There are two basic types of flood coverage to consider:
Building Coverage This coverage indemnifies the building, foundation electrical and plumbing systems, some built-in appliances, permanently installed cabinets, bookcases, floor coverings, and detached garages (depending upon the proximity to the building).
Content Coverage This coverage provides protection for electronic equipment, clothing, furniture, curtains, portable/window air conditioners, and some portable appliances.
Though it may appear that there is a greater need for building coverage than content coverage, an inch of water can result in costly damage to building content. In fact, flash floods often result in greater damage to building content than the building structure.
There is a general misconception that homeowners insurance also includes coverage for flood damage. This incorrect supposition can worsen a calamity. Renters, homeowners, and condo owners are wise to secure insurance for flood damage that will provide them with adequate coverage and peace of mind.