The fundamentals of flood insurance

Review what flood insurance does and doesn’t cover as well as how ‘flooding’ is defined by the NFIP.

Flood insurance covers direct physical damage to insured property up to the “replacement cost or actual cash value of the damages or the policy limit liability, whichever is less,” according to an NFIP bulletin. Credit: On-Air/Adobe Stock

A common misconception policyholders carry is that a standard home policy will cover them in the event of a flood. They typically do not, which makes for a huge oversight as the Federal Emergency Management Agency reported that from 1996-2019 nearly all (99%) of U.S. counties were affected by flooding.

Although the private flood insurance market has been growing, most flood insurance policies in the U.S. are written through the National Flood Insurance Program (NFIP). These policies cover direct physical damage to insured property up to the “replacement cost or actual cash value of the damages or the policy limit liability, whichever is less,” according to an NFIP bulletin.

The NFIP offers two types of coverages, building and contents, which must be purchased separately, according to FEMA. For residential properties, building coverage has a limit of up to $250,000 and $100,000 limit for contents. Commercial properties can get covered up to $500,000 for building and contents.

Building coverage protects things such as electrical and plumbing systems, water heaters and furnaces, built-in appliances like dishwashers and detached garages.

Contents coverage protects personal items such as furniture, electronic equipment and clothing as well as appliances like washers and dryers, portable and window AC units and microwave ovens.

Things that aren’t covered by building or content coverage include currency, precious metals, stock certificates and other valuable papers; cars and most self-propelled vehicles (including parts); and personal property kept in basements, according to the NFIP.

What triggers coverage?

According to FEMA, flooding is 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. Causes of flooding can include:

Damage from wind-driven rain and sewer backups that aren’t a direct result of flooding are not covered events. According to FEMA, buildings that sustain the type of damage caused by flooding, as defined above, will typically have a watermark showing how high the water rose before draining away.

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