Question: As Colorado fires are contained, we’re hearing more about the possibility of flash floods. I want to know more about flood insurance, how you get it and what it covers.
Answer: Floods often follow fires, and homeowners should learn about and evaluate the need for flood insurance. Many people think that their homeowner policies cover them against any disaster, but such policies often do not cover floods.
Flood insurance was established by the federal government in 1968. The program is administered by the Federal Insurance Administration, or FIA, which is a division of the Federal Emergency Management Agency, or FEMA. The flood insurance program is totally self-supported. All dollars paid by the flood insurance program come from policyholder premiums.
In order for you to buy flood insurance, your community must be accepted into the flood program. Residents, both homeowners and renters, in qualified communities can purchase flood insurance from any licensed insurance agent who is writing flood insurance under arrangements with the FIA in the United States. All premiums, policy wording and rules are the same nationwide.
With one exception, flood insurance does not provide replacement cost coverage on lost property. This means that, at the time of loss, the value of the property or item will be its current replacement cost minus a certain amount for depreciation.
The one exception says that if the policy is for a single family home that you live in 80 percent of the time and you insure it for at least 80 percent of its replacement cost (or the maximum coverage available under the flood program), the insurance will cover the building portion of your loss on a replacement-cost basis. This means the flood policy settlement will not be depreciated for structural items and the full cost to repair or replace your home will be paid.
For example, if you have a home that would cost $100,000 to replace, you need to purchase at least $80,000 (80 percent) in coverage to qualify for a replacement-cost settlement. As long as replacement-cost damages are less than $80,000, the entire claim would be covered by your policy. If your claim is more than $80,000, you would pay all expenses that exceed $80,000.
Coverage in basements is limited. No contents are covered in a basement and coverage on the structure itself is limited to unfinished walls and certain fixtures. Wallpaper, paint, shelves and carpeting are all excluded if they are in a basement.
I’ll discuss more on this topic next week.