Flood Insurance

What Is Flood Insurance?

Flood insurance is a type of property insurance that covers for losses sustained by water damage due to flooding caused by heavy or prolonged rain, melting snow, coastal storm surges, blocked storm drainage systems, or dam failure. In many places, a flood is considered a preeminent event, and the damage or destruction it causes is uncovered if you do not get supplemental insurance.

Deeper Definition

Flood insurance is a type of property insurance that covers losses sustained by water damage, precisely due to flooding. Flood insurance policies are available for all residential and commercial properties.

The federal National Flood Insurance Program (NFIP) offers flood insurance to homeowners in participating communities, along with those determined to be in the NFIP-designated floodplains; However, the policies are offered through private insurers, the government sets the rates. The pricing of the flood insurance policy is based on the NFIP-designated flood zone in which the property is located and the property age, elevation, and the number of floors. The average cost of flood insurance is $700, but the final amount depends on the location and type, and the size of the structure, among other factors.

A type of catastrophe insurance, a flood insurance policy, is different than the basic hazard insurance coverage contained in a homeowners’ insurance policy. Standard homeowners insurance covers interior water damage due to a burst pipe or weather events like tornadoes and rainstorms. However, it generally doesn’t cover destruction or damage caused by floodwaters. Property owners who live in an area prone to this natural disaster usually need to get special coverage.

Flood Insurance Example

Mark owns a jeweler’s store in a coastal area in his home state. It is expected, thus, that the area would be besieged by storms resulting in wanton losses that could be difficult to recover from. However, all those who obtained the rental property in the affected area would be required to make payments to cover the flood and the recovery of the lost items. As such, the residents would not feel badly hit by the otherwise heavy impact of the disaster.