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| Home : Consumers : Flood insurance : Risks, impacts and myths |
Risks, impacts and myths
Property insurance
Dwelling, Homeowner, Condominium, Farm and Tenant policies exclude coverage for damage due to flood, sewer backup, and sump pump failure. Many companies offer the buy back of limited coverage for sewer backup and sump pump failure. Not all companies offer the same level of coverage so it may be useful to shop around for the one that will meet your needs. If the potential risk of flooding is a significant factor in your risk analysis these policies will not provide flood coverage, even with the buy back endorsement for sewer backup and sump pump failure.
Businessowner's, Commercial Package's and Commercial Property policies generally exclude flood, sewer backup and sump pump failure. However, some commercial insurance companies also offer special policy forms or coverage enhancements which may bring back some limited coverage for these exposures. If the potential risk of flooding is a significant factor in the risk analysis for your business you may be able to obtain an enhanced policy with some coverage. Large commercial enterprises may also be eligible for a policy known as "Difference In Conditions" that may provide an additional layer of flood coverage. It is recommended that you discuss the availability of such coverage with your agent.
National Flood Insurance
The National Flood Insurance Program (NFIP) is the only source for flood insurance. Property owners can buy a flood insurance policy directly from NFIP by contacting a licensed Property & Casualty agent. All P&C agents are eligible to write directly with NFIP. In addition, NFIP has contracted with some insurance companies to write the coverage on behalf of NFIP using their companies name on the policy. These are known as "Write Your Own" (WYO) companies. The WYO company policy and premiums are identical to the federal policy.
There are different types of flooding.
Flood is defined as an overflowing of water onto land that is normally dry. The overflowing of water generally occurs in one of four ways:
- River floods occur when a river overflows its banks. This is generally associated with periods of high water flows such as spring runoff or icejams.
- Lake floods occur when a lake or other similar body of water overflows its banks. This is generally associated with seasonal fluctuations or an abnormal wet cycle.
- Tidal floods occur when a major storm event such as a tropical storm or hurricane cause larger then normal increases in tides.
- Flash floods occur in relatively localized areas when the area of normally dry land is unable to handle large amounts of rain in a short period of time.
Flood frequency
River flooding is common with some rivers flooding every year. Locations within a rivers flood plain can expect to see flooding each year depending on the amount and timing of the seasonal run off. All rivers whose river basins are subject to unusual or unseasonal amounts of precipitation are subject to flooding at anytime.
Lake floods are less frequent but generally associated with seasonal run off and unusual wet cycles.
Tide floods are directly related to the frequency of major tropical storms.
Flash floods are the most unpredictable because they occur in places that normally are not associated with flooding. These can occur in virtually any locale. The National Flood Insurance Program indicates between 20% and 25% of all flood claims come from areas outside of traditional flood plains. Other sources suggest that the odds are as high as 1 out every 3 flood events are not related to river, lake or tidal floods.
The impact of a flood
Direct damage
Buildings and contents that come into contact with or are inundated by flood water may suffer direct damage. The extent of damage may vary based on how long the object was in contact with the water and how contaminated the water was. If the water was relatively clean and was in contact for only a short time some items may be salvaged, ie; cleaned and dried with little or no impact. However, items like electrical appliances and fixtures, and electrical wiring once contaminated are likely not safe to recover and need to be replaced.
Buildings that are inundated for a long period of time or those in the direct path of moving flood waters have the potential for structural damage. Foundations and walls may buckle or shift, compromising the structural integrity and safety of the building.
Mold and mildew can be a serious problem following a flood event if the clean up and drying process are not done promptly and thoroughly.
Indirect damage
A property may be fortunate not to have direct damage from a flood but still suffer damage. Damage can occur as a result of some other failure that occurred as a result of the flood. Typical failures are power outages, sewer system and sump system failures.
Power outages can occur because the utility system is either damaged by the flood or the utility company has had to shut down service due to safety concerns. Without power refrigerators, freezers and electrical heating systems stop working. Food spoilage and freezing are potential problems.
Sewer system failure occurs when a city sewer system fails either due to lift stations not working as a result of the power outage or when the system is overwhelmed by the flood water causing it to back up. Sewer contamination can be extensive in lower levels of a building.
Sump system failure occurs when power to sump pumps stops or the volume of water entering the system exceed the ability of the system to remove it.
Myths
Myth: Only those people living in a flood plain need to be concerned about flooding.
It is a common misconception that people living in a designated flood plain are the only ones who need to worry about flooding. Recent experience in North Dakota has taught us that locations outside the flood plain are susceptible to flooding, in particular, flash flooding.
Myth: If I have direct flood damage to my home my homeowner's policy will cover me.
The standard homeowner insurance policy language clearly indicates that flood is excluded. The unpredictability and severity of flood events is so significant that regular insurance companies are unable and unwilling to provide coverage for flood. It is noteworthy that sewer and sump pump failure, as well as underground seepage, are also excluded. However, many insurance companies have elected to offer the ability to buy an endorsement with a limited amount of coverage for sewer or sump system failure
Myth: If I have a sewer or sump pump endorsement to my policy I will be covered in the event of a flood.
A sewer or sump pump endorsement on your policy does not mean you have coverage for flood. Most companies make it clear that they still do not cover flood damage only sewer damage. Some companies make it clear if flood is the cause directly or indirectly of the sewer or sump pump failure they will not cover any of the damage. Purchasing a sewer or sump pump endorsement should not be viewed as a purchase of flood insurance.
Myth: Since my mortgage company does not require me to have flood insurance I shouldn't have to worry about flooding.
Mortgage companies that issue federally regulated mortgage loans by law must require borrowers whose property is in a designated flood zone (Special Flood Hazard Area) to carry National Flood Insurance. However, loans that are not regulated by a federal program do not have this requirement. Further, experience has shown that not all mortgage companies have complied with this requirement and may not have required insurance when they should have. Since flooding can occur in areas other then just the designated flood zone, a consumer should avoid this false assumption.
Myth: We experienced a once in a 500 year flood in 1997 so I shouldn't have to worry about flood again during my lifetime.
The use of the terms "100 year floodplain" or "500 year floodplain" have created a false sense of security in the public. If your are in a 100 year floodplain it means that every year you have 1% chance that it will flood. So in the case where a flood event of a 500 year proportion occurred in 1997 it doesn't mean we will not have another flood of this magnitude for another 500 years. If conditions were right, ie: ground saturation, snowpack, timing and duration of the spring thaw, storms, icejams, etc., an occurrence of that magnitude could happen again.
Myth: You can't buy flood insurance if you are located in a high flood-risk area.
You can buy National Flood Insurance no matter where you live if your community participates in the NFIP (except in the Coastal Barrier Resources System areas). The program was created in 1968 to provide flood insurance to people who live in areas with greatest risk of flooding called Special Flood Hazard Areas (SFHA). In fact lenders providing a federally regulated mortgage loan must require borrowers in the SFHA to purchase flood insurance.
Myth: You can't buy flood insurance immediately before or during a flood.
You can purchase flood coverage at any time. However, for most applicants there is a 30 day waiting period after you've applied and paid premium before the policy is effective. There are some exceptions to this waiting period requirement so it is recommended you discuss this with an agent to determine if you are eligible. The policy does not cover a "loss in progress," defined as a loss occurring as of 12:01 a.m. on the first day of the policy.
Myth: Homeowners insurance policies cover flooding.
Homeowner's policies do not cover direct physical loss caused by flood.
Myth: Flood insurance is only available for homeowners.
Flood insurance is available to protect homes, condominiums, apartments and nonresidential buildings, including commercial structures. Residential structures, including condominiums, may be insured to a maximum of $250,000 per unit. The limit for contents on residential building is $100,000, which is also available to renters. Commercial structures can be insured to a limit of $500,000 for the building and $500,000 for the contents.
Myth: You can't buy flood insurance if your property has been flooded.
You are still eligible to purchase flood insurance after your home, apartment or business has been flooded, provided that your community is participating in the NFIP.
Myth: Only residents of high-flood-risk zones need to insure their property.
Even if you live in an area that is not flood-prone, it is advisable to have flood insurance. Between 20 percent and 25 percent of the NFIP's claims come from outside high-flood-risk areas. The NFIP's Preferred Risk Policy, available for just over $100 per year, is designed for residential properties located in low to moderate-flood-risk zones.
Myth: National Flood Insurance can only be purchased through the NFIP directly.
NFIP flood insurance is sold through private insurance companies and agents, and is backed by the federal government.
Myth: The NFIP does not offer any type of basement coverage.
Yes it does. The NFIP defines a basement as any area of a building with a floor that is below ground level on all sides. While flood insurance does not cover basement improvements, such as finished walls, floors or ceilings, or personal belongings that may be kept in a basement, (ie; furniture or clothing), it does cover structural elements, essential equipment and other basic items normally located in a basement. Many of these items are covered under the building coverage, and some are covered under the contents coverage portion of the policy. The NFIP encourages people to purchase both building and contents coverage for the broadest protection.
Myth: Federal disaster assistance will pay for flood damage.
Before a community is eligible for disaster assistance, it must be declared a federal disaster area. Federal disaster assistance declarations are issued in less then 50 percent of flooding incidents. The premium for an NFIP policy averages little more then $300 a year which is less expensive than interest on a federal disaster loan. Not all federal disaster aid in is the form of grants. Most of the aid is in the form of low interest rate loans which must be paid back. Furthermore, if you are uninsured and receive federal disaster assistance after a flood, you must purchase flood insurance to remain eligible for any future disaster relief.
Myth: The NFIP does not cover flooding resulting from hurricanes or the overflow of rivers or tidal waters.
The NFIP defines covered flooding as a general and temporary condition during which the surface of normally dry land is partially or completely inundated. Two properties in the area or two or more acres must be affected. Flooding can be caused by:
- The overflow of inland or tidal waters.
- The unusual and rapid accumulation or runoff of surface waters from any source, such as heavy rainfall, or mudslides, i.e., mudflows, caused by flooding, that could be described as a river of liquid and flowing mud and the collapse or destabilization of land along the shore of a lake or other body of water, resulting from erosion or the effect of waves, or water currents exceeding normal, cyclical levels.
Myth: Wind-driven rain is considered flooding.
No, it isn't. Rain entering through wind-damaged windows, doors or a hole in a wall or the roof, resulting in standing water or puddles, is considered windstorm (rather than flood) damage. National Flood Insurance only covers damage caused by the general condition of flooding typically caused by storm surge, wave wash, tidal waves, or the overflow of any body of water over normally dry land areas. Buildings that sustain this type of damage usually have a watermark, showing how high the water rose before it subsided. The Standard Flood policy does not cover wind or hail damage.
The National Flood Insurance Standard Policy
Following is a brief summary of the Standard Flood Insurance Policy. The summary offers highlights of the policy and is not intended to be all inclusive. It should be noted that the SFIP was updated and revised with an effective date of December 31, 2000. If you need more detailed information contact an agent. For a copy of the policy and more information on the subject go to the NFIP web site.
Coverage A - Building Property
Coverage for direct physical loss by or from flood to:
- The dwelling or manufactured home at the described location
- Additions and extensions to and in contact with the dwelling
- A detached garage-limited to 10% of dwelling coverage
- Materials and supplies to be used for construction, alteration or repair
- Awnings and canopies
- Blinds
- Built-in dishwashers
- Built-in microwave ovens
- Carpet, permanently installed over unfinished flooring
- Central air conditioners
- Elevator equipment
- Fire sprinkler systems
- Walk-in freezers
- Furnaces and radiators
- Garbage disposal units
- Hot water heaters, including solar water heaters
- Light fixtures
- Outdoor antennas and aerials fastened to buildings
- Permanently installed cupboards, bookcases, cabinets, paneling and wallpaper
- Plumbing fixtures
- Pumps and machinery for operating pumps
- Ranges, cooking stoves, and ovens
- Refrigerators
- Wall mirrors, permanently installed
Coverage A - Building Property (basements only)
Only the following items are covered building property in a basement:
- Central air conditioners
- Cisterns and the water in them
- Drywall for walls and ceilings in a basement and the cost of labor to nail it, unfinished and unfloated and not taped, to the framing
- Electrical junction and circuit breaker boxes
- Electrical outlets and switches
- Elevators, dumbwaiters, and related equipment, except for that installed below base flood line
- Fuel tanks and the fuel in them
- Furnaces and hot water heaters
- Heat pumps
- Nonflammable insulation in a basement
- Pumps and tanks used in solar energy systems
- Stairways and attached to the building
- Sump pumps
- Water softners
- Well water tanks and pumps
- Required utility connections for any item in this list
- Footings, foundations, posts, pilings, piers, or other foundation walls and anchorage systems required to support a building
Coverage B - Personal Property
Coverage for direct physical loss by or from flood to:
- Personal property owned by you or your household members at the described location
- At your option, the property owned by guests
- Air conditioning units, portable or window type
- Carpets, not permanently installed, over unfinished floors
- Clothes washers and dryers
- "Cook out" grills
- Food freezers, other then walk-in, and food in any freezer
- Portable microwave ovens and portable dishwashers
Coverage B - Personal Property (basement only)
Only the following items are covered personal property in a basement:
- Air conditioning units, portable or window type
- Clothes washers and dryers
- Food freezers, other than walk-in, and food in any freezer
Coverage C - Other Coverages
- Debris removal
- Loss avoidance - $1,000 for sandbags, levees etc.
- Property removed to safety - $1,000 for expenses
- Condominuim Loss Assessments
Coverage D - Increased Cost of Compliance
A limit of $20,000 in addition to policy limits for elevation, floodproofing, relocation, or demolition as a result of state or local floodplain management program requirements following flood damage.
Section V- Exclusions
Coverage for sewer backup, sump pump failure and seepage (pressure) is excluded unless the proximate cause of the loss is flooding then coverage is provided.
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