Flood Damage versus Water Damage – The Insurance Company Perspective

In October 2012, the entire nation watched as Superstorm Sandy devastated millions of lives and caused property damage totaling in the tens of billions of dollars.  Yet, for many of the storm’s victims, the nightmare didn’t end when the storm subsided.

Unbeknownst to thousands of homeowners along the Eastern Seaboard – and to millions of unsuspecting homeowners even now – flood damage is not covered by the average homeowner’s insurance policy.  Indeed, in one of the regions hardest hit by Superstorm Sandy – the Nassau and Suffolk Counties of Long Island – fewer than half of the buildings damaged were covered by flood insurance.  According to the Federal Emergency Management Agency, approximately 95,000 homes, businesses, and other buildings were damaged to some degree by the storm.  The owners of more than 52,000 of these structures did not have flood insurance.

Unfortunately, even in areas that are considered at high risk for flooding, most homeowners without federally backed mortgages do not have flood insurance.  Just seven years before Superstorm Sandy, Hurricane Katrina wove its historic path of destruction along the Gulf Coast.  In New Orleans alone, approximately 60 percent of the homes damaged by flooding were not covered by flood insurance.

It is important that you understand very clearly that if you own a home but do not have flood insurance, you will not be compensated by your insurance company for flood damage.  Under the vast majority of homeowner’s insurance policies, flood damage is not considered a form of water damage.

How could this affect you as a homeowner?  Unfortunately, if your home has already suffered flood damage and you do not have flood insurance, your range of options will be narrow.  You may qualify for a low-interest loan, or Fast Home Help may be able to make you a cash offer for your flood-damaged home.

If you are reading this page as part of research into flood insurance, we urge you to contact your insurance agent immediately to learn more about purchasing a flood insurance policy.  Although you may be able to purchase flood insurance through your existing insurance company, you may also be referred to the National Flood Insurance Program (NFIP), which is run by FEMA.

Who needs flood insurance?  What if I live in an area that isn’t at risk for flooding?

If you live in a high-risk flood hazard area and have a mortgage from a federally backed or insured lender, then you have already purchased a flood insurance policy as a condition of your mortgage.  If you rent your home, own your home outright, or live in a moderate-to-low-risk flood hazard area, chances are that you do not have flood insurance.

If you do not have flood insurance, it is most likely for one of these three common reasons:

• Like many homeowners, you think that you are covered for flood damage under your current homeowner’s insurance policy and therefore do not need flood insurance.  This is almost certainly not the case.  If you are unsure as to whether you are covered for flood damage, ask your insurance agent.  Most likely, you aren’t.
• You live in a moderate-to-low-risk flood hazard area where flooding is extremely rare.  You aren’t required to carry flood insurance in order to secure a mortgage, and flood insurance would be an unnecessary expense – right?  Possibly.  But according to FEMA, nearly 20 percent of all NFIP claims are submitted from moderate-to-low-risk areas.
• Many people believe that flood insurance is expensive.  In reality, the NFIP offers policies with annual premiums as low as $100.

If your home has been damaged by flooding, and you do not have flood insurance, we cannot stress enough how important it is to insure your future home against flood damage.  Many homeowners that suffered flood damage during Tropical Storm Irene in 2011 remained uninsured the next year when Superstorm Sandy struck.

How do insurance companies distinguish between flood damage and water damage?

For the purposes of insurance companies, a flood is classified as a temporary rising of water on land that is normally dry, causing general damage to multiple properties.  Flooding can occur due to:

• The overflowing of a body of water, such as a river, ocean, or lake
• Heavy rains that cause water to seep into the basement of a home because of the soil’s inability to absorb it quickly enough
• A mudslide caused by heavy rains

The sort of water damage covered by most homeowner’s insurance policies does not rise from the ground, but rather comes into contact with the home before it hits the ground.  For example, if a heavy rain causes water to leak through your roof or water escapes into your home due to a burst pipe, the resulting damage will most likely be covered by your homeowner’s insurance.

Flooding caused an electrical fire in my home.  Will my insurance company cover the damage caused by the fire?

Most homeowner’s insurance policies will cover damage caused by fire, explosion, or theft, even if that damage resulted from flooding.  Therefore, your insurance might cover the damage caused specifically by an electrical fire caused by a flood, even if it does not cover any of the water damage.

Know Your Insurance Policy

Insurance companies are in the business of making money.  No matter how nice your insurance agent might seem, or how benevolent the image insurance companies present of themselves through advertising, your insurance company is ultimately trying to maximize its profits.  If your home is damaged, regardless of the cause, your insurance company will do whatever it can to minimize its payout to you.  It is important that you know precisely what your insurance policy will and will not cover, preferably before your home is damaged by a flood or other disaster.

If your home has suffered flood damage and you want to know more about your rights and options as a homeowner, don’t hesitate to contact Fast Home Help today.