Flood insurance misconceptions: 8 facts you should know

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If you don’t think your home is at risk for flooding, think again.

People outside of high-risk flood areas receive one-third of disaster assistance for flooding and file more than 20 percent of flood insurance claims, the National Flood Insurance Program says. Floods happen in all 50 states — not just hurricane-prone coastal areas — and are the most common natural disaster in the United States.

“Maybe if you lived on top of a mountain along the Continental Divide, maybe then you wouldn’t need flood insurance, but that’s about the only place you don’t need it,” says J. Fletcher Willey Jr., president of The Willey Agency in Nags Head, N.C.

Yet flood insurance is one of the most misunderstood types of insurance coverage. Here are eight facts to clear up some of the most common misconceptions about coverage through the National Flood Insurance Program:

1. No flood coverage under home insurance

Many people still assume standard renters and home insurance covers floods, says Larry Case, executive vice president of the Missouri Association of Insurance Agents. But you must purchase a separate flood insurance policy to protect your home and belongings from flood damage.

Most flood insurance is provided through the National Flood Insurance Program, administered by the Federal Emergency Management Agency. You can buy federal flood insurance from companies and agents certified to sell it if your community participates in the National Flood Insurance Program.

2. Flood insurance has caps

The amount of coverage you can buy through the NFIP is capped at $250,000 for a home’s structure and $100,000 for contents.

If you want more coverage, you have to buy excess flood insurance, which is sold by private insurance companies. The excess policy covers the cost of flood damage over and above the $250,000/$100,000 caps.

3. Coverage limited in basements

The distinctions can be tricky, so read the policy for details. Some structural elements in the basement are covered, such as central air conditioners, foundation walls, electrical outlets, furnaces and hot water heaters. However, carpeting and floor tile are not covered.

Some appliances in the basement are covered, such as washers and dryers, portable air conditioners and freezers. But refrigerators are not covered. Most personal belongings–including furniture, clothing and electronic equipment–are not covered when they’re in the basement.

4. Building and contents insurance required

A standard home insurance policy automatically covers personal belongings up to a certain percentage of the home’s insured value. With flood insurance, you must purchase contents coverage as well as building coverage to get both.

5. No additional living expenses provided

If your home is destroyed by fire, homeowner insurance pays for the cost to rent comparable living quarters until the house is rebuilt. But flood insurance does not include coverage for additional living expenses. You typically foot the bill to rent a place to live while your home is being repaired after a flood.

However, when the president of the United States issues a major disaster declaration and homes are uninhabitable, FEMA can help affected homeowners and renters with alternative living expenses, says Gina Cortez, a FEMA spokesperson. This assistance may last up to 18 months.

6. No replacement cost coverage for personal belongings

Unlike standard home insurance, which lets you purchase replacement cost coverage for personal belongings, flood insurance features only actual cash value coverage for possessions.

Replacement cost coverage reimburses you for the cost to buy a new item to replace a destroyed belonging. Actual cash value coverage takes depreciation into account and reimburses you for the value of the item at the time it was destroyed. So if a flood destroys your 3-year-old television, flood insurance reimburses you for the value of a used TV–not for the cost to buy a new one.

To qualify for replacement cost coverage to rebuild part of a destroyed building, the home must be your principal residence, and you must have insured it for at least 80 percent of the cost to rebuild or up to the $250,000 cap. Otherwise, reimbursement for rebuilding is based on the actual cash value.

7. Limited coverage on valuables

The coverage for valuables, such as furs and fine art, is limited to $2,500. Currency, precious metals and valuable papers, such as stock certificates, are not covered at all.

8. No flood coverage for hot tubs and swimming pools

Flood insurance doesn’t cover property and belongings outside the home. That includes hot tubs, swimming pools, decks, patios, fences, landscaping, walks, wells and septic systems.

Likewise, flood insurance pays for removal of debris in or on the home’s structure, but not in the yard, Willey says.

Finally, don’t wait until water is lapping at the front door to purchase a policy. Flood insurance has a 30-day waiting period from the date of purchase until the time it goes into effect. The only exceptions are if you’re buying additional insurance when renewing a policy or as a result of a map revision, or if a lender requires flood insurance for a home loan.