Know What Types of Coverage Options You Have and What Makes the Most Sense for Your Property
Once you’ve come to the conclusion that flood insurance for your property is a good idea (if not mandated by the government or your lender), you’ll likely still have questions. The main one being, what are my options?
Flood insurance can be broken up at its highest level into two separate categories: structural coverage and contents coverage. Structural, or building, coverage takes care of the physical building, foundation, and permanent components of the property, while contents coverage refers to your possessions within the property.
Homes can typically be insured up to $250,000, while the contents within may be covered up to $100,000. Commercial properties can be covered even more — up to $500,000.
It’s important to note that we didn’t mention anything about the land that the property sits on. That’s because land is not included in any type of flood insurance, but you may be able to protect landscaping and other elements of the outdoor property through other insurance policies.
Let’s break it down and discuss what’s actually covered under each type of flood insurance.
It may seem obvious that the building itself is what’s covered under this type of insurance, but there’s a little bit of nuance to it. Not only is the physical structure itself covered, but anything that is permanently affixed or vital to the infrastructure is typically also covered.
Building Coverage includes the following above-ground* items:
- The insured building and its foundation
- The electrical and plumbing system
- Central air conditioning equipment, furnaces, and water heaters
- Refrigerators, cooking stoves, and built-in appliances such as dishwashers
- Permanently installed carpeting over unfinished flooring
*Basements are tricky. We’ll get to that in a moment.
Contents Coverage takes care of most of your personal belongings damaged in a flood, including:
- Clothing, furniture, and electronic equipment
- Portable and window air conditioners
- Portable microwaves and dishwashers
- Carpeting that is not already included in property coverage
- Clothing washers and dryers
The Basement Factor
Now for that basement tidbit. Some of the things in your basement are covered under Building Coverage, such as the furnace, hot water heater, and circuit breaker as mentioned above. Some others are covered under Contents Coverage, like a washer and dryer as well as your freezer and all the food in it.
But flood insurance does not cover improvements to your basement. So, if you carpet the basement and finish the walls, floors or ceilings and they get damaged by flood water, none of those are covered by flood insurance. Personal belongings kept in the basement are also not covered under flood insurance. For those items, some homeowners policies can cover them in case of damage.
It’s smart to consider both Building and Contents Coverage to make sure you’ve got it all covered in case of a flood. Your insurance agent can help you determine the best mix of coverage for your particular needs.
Increased Cost of Compliance (ICC) Coverage
We didn’t include this as one of the two main types of flood coverage because it’s really only applicable if your property has already had flood damage. Sometimes when a home or business has been damaged by a flood, it may be required by law or ordinance to make adjustments and enhancements to the property to reduce that possibility or impact of flood damage in the future. That can get pricey, so NFIP offers Increased Cost of Compliance (ICC) coverage to eligible properties with Standard Flood Insurance.
You’re eligible to file a claim for ICC coverage if:
- You have substantial damage to the property, meaning damage to your home or business require repairs that cost 50 percent or more of the building’s pre-damage market value, as determined by your community.
- You have repetitive damage. This one has a lot of “ifs.” Repetitive damage qualifies if:
- Your community has a repetitive loss provision in its floodplain management ordinance,
- Your home or business was damaged by a flood two times in the past 10 years,
- The cost of repairing the flood damage equaled or exceeded 25 percent of its market value at the time of each flood (on average) as determined by your community, and
- There was a flood insurance claim payment for each of the two flood losses.
- You are part of a FEMA-sponsored grant program and meet the eligibility requirements.
Reimbursement and Coverage Limits
If a flood does damage your home, there are two common reimbursement methods to get you back on dry ground (so to speak): Replacement Cost Value (RCV) and Actual Cash Value (ACV). RCV is for owners of single-family, primary residences insured to within 80 percent of the structure’s replacement cost, and it refers to the cost of replacing the damaged property.
Other buildings and anything under Contents Coverage are reimbursed at ACV, which is calculated by determining the RCV at the time of loss minus physical depreciation.
Depending on the type of property and the type of flood insurance, there are limits to the amount that is covered. NFIP has a pretty comprehensive list of FAQs that clarify how reimbursement is distributed, as well as a handy chart (below) that lists out the flood coverage limit for each type of flood insurance.
|Flood Coverage Limit|
|One to four-family structure||$250,000|
|One to four-family home contents||$100,000|
|Other residential structures||$500,000|
|Other residential contents||$100,000|
The independent insurance advisors at CoverLink Insurance are here to talk through coverage options and limits and help you make the decisions that are right for you. Contact us today for more information.