Ah, summer! Time for lazy days spent lounging by the pool, backyard barbeques, fireflies at dusk, and everyone’s favorite—summer vacation. With COVID-19 in full force this time last year, many of us h...
Did you know that most homeowners insurance policies don’t cover damage caused by floods? If you live in a high-risk flood area, most mortgage lenders will require you to purchase flood insurance through FEMA’s National Flood Insurance Program (NFIP). However, since the NFIP reports that over 20% of flood insurance claims come from outside high-risk flood areas, most people are encouraged to consider obtaining coverage.In this blog post, we’ll let you know what is and isn’t covered under the standard NFIP flood insurance policy. We’ll also discuss the true cost of rebuilding a home under the current market conditions to help you determine whether you have adequate flood coverage for your home.
What IS covered by standard flood insurance?
The NFIP typically offers two types of flood insurance—building coverage and contents coverage. Here are examples from the NFIP of what’s covered with their standard flood insurance:
- Electrical and plumbing systems
- Furnaces and water heaters
- Refrigerators, cooking stoves, and built-in appliances like dishwashers
- Permanently installed carpeting
- Permanently installed cabinets, paneling, and bookcases
- Window blinds
- Foundation walls, anchorage systems, and staircases
- Detached garages
- Fuel tanks, well water tanks and pumps, and solar energy equipment
- Personal belongings such as clothing, furniture, and electronic equipment
- Washer and dryer
- Portable and window air conditioners
- Microwave oven
- Carpets not included in building coverage (e.g., carpet installed over wood floors)
- Valuable items such as original artwork and furs (up to $2,500)
What’s NOT covered by standard flood insurance?
According to the NFIP, the cause of flooding matters when it comes to determining coverage. “Flood insurance covers losses directly caused by flooding. In simple terms, a flood is an excess of water on land that is normally dry, affecting two or more acres of land or two or more properties. For example, damage caused by a sewer backup is covered if the backup is a direct result of flooding. If the sewer backup is not caused directly by flooding, the damage is not covered.”
Items not insured by NFIP building or contents coverage include:
- Temporary housing and additional living expenses incurred while the building is being repaired or is unable to be occupied
- Property outside of an insured building. For example, landscaping, wells, septic systems, decks and patios, fences, seawalls, hot tubs, and swimming pools
- Financial losses caused by business interruption
- Currency, precious metals, stock certificates, and other valuable papers
- Cars and most self-propelled vehicles, including their parts
- Personal property kept in basements
The True Cost of Rebuilding After a Flood
If you do decide to purchase standard flood insurance through the NFIP, you should definitely be aware that the federal policy maxes out at $250,000. As of June 2021, the average price of new homes sold in the U.S. was $408,800. If your home was to experience a catastrophic loss due to a flood, that’s a significant gap in coverage.
That’s assuming your home costs $408,800 to rebuild. Normally, it costs more to rebuild than it does when you first purchase your home due to inflation of the cost of materials, labor, permits, etc. In 2021, however, given the recent meteoric rise in the cost of building materials, it could cost significantly more than normal to rebuild.
One homebuilder recently reported in Bloomberg that the sale price of one of their most popular home models is 58% higher than it was two years earlier, which reflects the increased cost of materials and labor we’ve experienced since the COVID-19 pandemic began in March 2020.
Under the standard NFIP flood insurance policy, if your home experienced major flooding, your family would be responsible—at minimum—for the $158,800 difference to build a new home. Given the current market conditions, if you need to rebuild anytime soon, this cost will likely be significantly higher.
If you still have a balance on your mortgage, a good fair portion will need to go toward paying off the loan on a house that is uninhabitable. Leaving you with a fraction of your policy payout to rebuild and start over.
The True Cost of Replacing Personal Belongings
Parallel to the cost of the home itself, there's also the matter of your personal belongings such as clothing, electronics, appliances, and furniture. The NFIP policy only covers $100,000 for belongings lost in a flood. If you have a household of four or more, that price will quickly exceed the $100,000 limit.
At this point, maybe you've decided that the basic flood insurance policy isn't going to cut it because your home is worth more than the standard policy covers. This would make excess flood insurance a potential solution. In order to add excess flood insurance, you need to prove to an insurance agent that you already have standard flood insurance.
How Would Excess Flood Insurance Help Cover the Gap in Coverage?
The biggest upgrade to standard flood insurance is the simple fact that excess coverage provides up to $5 million to rebuild a home or business in the event of a flood. Additionally, excess flood coverage provides up to $2 million in most states ($1 million in Florida) to replace stand-alone contents that may be valued above the NFIP limits. Again, as excess flood insurance goes above and beyond the standard coverage limits, the program offers funds for your family's living expenses to help you through the transition process.
If flooding is a concern to you and your family and the price to rebuild your home exceeds the NFIP policy limit, then excess flood insurance may be coverage to consider.
Much like any other insurance program, your specific limits will depend on a number of factors so it's best to speak with an agent directly to determine what your limits and premiums will be.
As Executive Vice President, B2C Channel Development, Tyreo Harrison enables referral partners and financial institutions to offer personal, commercial and surplus lines insurance products to increase non-interest income, improve borrower retention and add value to their service offering. He maintains his General Lines Agent Licenses for Property and Casualty, Life, Accident, Health, and HMO. He is a graduate of the North San Antonio Chamber of Commerce Leadership Lab and in 2008 was named as one of the San Antonio Business Journal’s “40 Under 40” Rising Stars. Prior to joining SWBC in 2005, Tyreo played professional football for the Philadelphia Eagles and Green Bay Packers.