Back to basics: Property insurance is not flood insurance
We were talking about Superstorm Sandy in our last post, and it occurred to us that the flooding from the rain and the storm surge could be new to some homeowners and business owners. Hurricanes Irene and Lee last year gave some communities along the East Coast their first experience with flood damage, but Sandy seems to have cut a wider, and perhaps deeper, path. As a result, we thought we would back up a little and explain some flood insurance basics.
First and foremost, property insurance may cover water damage from burst pipes or overflowing washing machines, but chances are excellent that it does not cover water damage caused by Mother Nature. Flooding is covered by flood insurance, which is entirely separate from property insurance.
Private insurance companies do not underwrite or sell their own flood insurance policies. Rather, they sell flood insurance available through the federal government’s National Flood Insurance Program. The government develops a Flood Insurance Rate Map based on the risk of flooding in each area of the country. Your coverage and premium is determined by where your property falls on the rate map. Coastal Florida, for example, would be a high risk area, while Death Valley would be a low risk area.
Do not be fooled, though, into believing that you don’t live in a flood zone. As parts of the country learned last year, we all live in a flood zone, but our risk of flooding and flood damage varies. NFIP is in the insurance business, and, like all insurance companies, it bases its rates on risk.
And do not be fooled that the damage caused by flooding is generally so bad that the coverage must cost an arm and a leg. A business in a moderate-to-low risk area can pay less than $1,000 annually for $100,000 of coverage on a building; contents coverage is even less expensive, at about $250 for $100,000 of coverage. Considering that the damage can be pretty bad, a relatively small investment will get you a lot of protection.
What every business and every homeowner needs to understand is that flood insurance may be your only line of defense. The government will not help you rebuild if your neighborhood is leveled by a storm surge unless the president has declared it a disaster area. And, importantly, if you are required to carry flood insurance, as many in Florida are, but you choose not to, you will not qualify for federal aid.
We have said it often, and we will say it again here: Insurance is all about risk, and that includes the risk the insureds are willing to take.
Source: The News Star, “Flood insurance can keep you from drowning in losses,” Christine Berry, Nov. 4, 2012
Our firm helps business owners and individuals with delayed and denied property insurance claims. If you are interested in learning more about our practice, please visit the Miami, Florida, insurance coverage dispute page of our website.
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