Homeowners Policy vs. Flood Policy, What’s the Difference?
Let’s first take a moment to define the different kinds of floods. You may have heard a friend or neighbor say, “my hot water heater burst and my house flooded.” This is a different kind of flood than if a river overflowed its banks and entered a home, both in how insurance coverage is determined and the way the damage is handled. In short, the defining point being the source of the flood. Did the flood happen because of an appliance malfunction or pipe burst inside the home or did the flood happen because of an overflowing creek or pond?
While your homeowner’s insurance may pay for water damage due to broken pipes, flood insurance pays for damages caused by the rising of a body of water that covers normally dry land. A standard homeowners insurance policy DOES NOT cover damage caused by rising water.
You will need flood insurance if you live in a designated flood zone. Your insurance agent can tell you if your house is located in a flood zone. Although you may never experience a flood, living in a recognized flood zone increases your risk of flood damage. You may need flood insurance if your home is near a river that could overflow its banks or at the bottom of a steep hill.
The National Flood Insurance Program is a federal program that provides insurance coverage for damages due to floods. You can purchase this national flood damage coverage from your insurance agent or your local Federal Emergency Management Agency office. The NFIP provides replacement cost value (RCV) coverage for the structure of your home. This means, the policy will cover the amount necessary to rebuild your home as it was before the damage. However, the NFIP provides only actual cash value (ACV) coverage for your possessions. That means you’ll get the current value of your possessions, which may be considerably less than they cost you’ll incur to replace them, especially if they are older and have depreciated in value.
*Note: if you think you need flood insurance, don’t wait for a flood warning to buy a policy – there is a 30-day waiting period before the coverage takes effect.