Flood Insurance Only Works With the Right Type of Water Damage: What You Need to Know

Flood insurance may comfort you when the water’s rising, but it may not cover all of your losses.

Flooding became an issue for my wife and me on New Year’s Day 2017, when we came home to find our basement coated in roughly an inch and a half of standing, bitterly cold water. An emergency call to a plumber led to double the normal maintenance fee, but helped us discover that the float on our house’s drainage pump was no longer working.

Our house isn’t in a flood plain and is nowhere near a river, but it does sit on a flat lot comprised largely of clay and requires a drainage pump to keep excess water away from the foundation. This instance didn’t cost us any furnishings or appliances and was easily cleaned with a portable sump pump and some wet-dry vacuums, but it did get us thinking about flood insurance.

Two months after our basement flooded, the folks at insuranceQuotes released the results of a survey it commissioned, asking homeowners for their thoughts on insurance coverage. According to that survey, 56 percent of homeowners believed that a standard homeowners policy covered flood damage. Among younger homeowners, aged 18 to 36, a full two-thirds (67 percent) believed that to be true.

It isn’t.

“And floods can happen at any time in any place,” Stephanie Moffett, spokeswoman for the Federal Emergency Management Association, said at the time. “It’s the No. 1 costliest disaster in the United States.”

We were fortunate, as five inches of water in a 1,000 square-foot home can do more than $11,000 in damage. But federal disaster assistance won’t pay for flood damage unless the home is in a disaster area declared by the president. Even then, FEMA says, much of that assistance comes in the form of loans that need to be paid back… with interest.

However, back in 1968, Congress created the National Flood Insurance Program to not only manage flood plains and identify flooding hazard zones, but to insure homeowners from most flooding events. Roughly 25% of all flood claims occur in low- to moderate-risk areas, with people in those areas receiving a third of federal disaster relief related to flooding.

It’s the cost of flood insurance that gives some folks pause. Though FEMA notes that flood insurance premiums start at only $119 a year, that’s dependent on a number of factors. The average annual premium is closer to $700, but in states including Connecticut, Vermont, and Rhode Island, the average is double that amount. Meanwhile, the maximum coverage for residential buildings is $250,000 on the structure and $100,000 for contents.

If your home is worth more than those payout limits, you may have to dip into privately funded excess flood insurance. Even if your home is at the $250,000 limit for structural flood damage, a mortgage lender might require you to take out more if you live in an area that’s known for flooding.

If you’re in a low-risk “B” zone or lower, that supplemental coverage might run you about $400 extra a year. However, if you’re in an “A” zone or a more-endangered “V” zone right near water, the annual bill can fluctuate between $3,000 and $14,000.

That said, excess flood insurance also comes with loss-of-use protection that kicks in if you have to pay to live somewhere else while your home is being fixed. It also tends to lack the deductibles of federal flood insurance policies, which can stretch as high as $10,000, depending on how much of a discount you want upfront. The downside to those excess insurance policies is that they aren’t beholden to the same guidelines as federal policies, and aren’t required to cover the same damages.

There are other downsides, too. Both private and NFIP policies will kick in only if there is flooding on two or more neighboring properties or on two or more acres. Also, cosmetic damages caused by our basement flooding wouldn’t have been covered under flood insurance, because it doesn’t cover non-essential items in areas below ground level on all sides, such as carpeting, flooring, or furniture.

Finally, any mud damage that results from flooding has to fit a specific (and oddly dessert-based) definition to be covered: According to FEMA, “a mudflow is a river of liquid mud similar in consistency to a milkshake. Mudslides, on the other hand, are more solid and more closely resemble a cake.” Only the former is covered by a federal flood insurance policy, which makes it a tough lesson to learn on the fly if your house survived Western wildfires, only to be hit by a mudslide a few months later.

“Don’t confuse mudflows with mudslides, as there are distinct differences,” notes the Insurance Information Institute. “Mudslides occur when a mass of earth or rock moves downhill, propelled by gravity. They typically don’t contain enough liquid to seep into your home, and they aren’t eligible for flood insurance coverage. In fact, mudslides are not covered by any policy.”

If you live on a grade and mudslides are a concern, there is a way to get covered without convincing an insurer that mudslides and wildfires are linked and should both be covered under the same insurance. The III notes that an “earth movement” rider may cover both the structure and your valuables in the event of a rare occurrence like an earthquake, volcano eruption, or landslide. Those riders are often known as “Difference in Conditions” policies and offer all-in-one coverage for landslides, mudflows, earthquakes, and floods.

The cost will vary based on the the value of the home, its location, and the history of such cataclysmic conditions, but insuranceQuotes notes that such policies typically aren’t cheap. If those disasters are genuine concerns in your area, you may still want to look into it.

However, if you’re like us and just get spooked by occasional water in your basement, just know that items like a furnace will typically be covered by your home’s structural policy, while appliances like your washer and dryer and other various items you have stored down there will be covered under contents coverage. If you’re still worried, either invest in some regular maintenance for your drainage system, or shop around for a submersible sump pump. Leave the flood insurance to those dealing with actual flooding.