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Homeowners insurance and flooding

Every year, there’s a survey of customer satisfaction with the insurance industry. This year, the satisfaction level with companies offering cover for damage to home and contents is at an all-time low. In part, this is caused by the recession. As families are under more financial pressure, they look to the insurers for more generosity in repairing or replacing property only to find reluctance to pay. But about half those surveyed did not actually know what type of coverage they had on their homes. The dissatisfaction is more often caused by misunderstandings about exactly what the policies cover. Nationally, this is leading to lower levels of retention as customers move from one insurer to another, always hoping to find better value.

One issue is proving particularly troublesome. When surveyed, people tend to have fire uppermost in their minds. Yet the statistics show the risk of fires is quite low. The risk of flooding is significantly higher. There are two reasons for this. The first is more storms have affected the US, in some cases, dumping vast amounts of rain in very short periods of time. Whether this is climate change is not the issue. It’s actually happening. The second is there has been a steady increase in the level of building in flood-hazard areas. Just living there is bad enough. Covering up land that would struggle to absorb the water without putting in proper drains just makes the problems worse.

Because the risk of flooding is now higher, many insurers either exclude the risk altogether or offer only very limited coverage. You should check your policy to see whether “water damage” is included. This is defined as any situation in which water causes loss or damage to either the structure or contents. It can be frozen pipes during winter, or rain coming through a displaced roof tile, or water rising from the local sewers, or a local river bursting its banks. The list of possibilities is long. So it comes as a shock to many holding a homeowners insurance policy to discover it does not cover against flood damage. In fact, you most often have to buy coverage through the Federal Emergency Management Agency. The cover is called the National Flood Insurance Program and it’s available through most insurance agencies. It was introduced by the Federal Government in 1968 because the insurance industry was consistently refusing coverage to people living in high-risk areas. If your own homeowners insurance does not offer a reasonable level of protection, you should buy into the federal program.

This is not planning against rare disasters like a hurricane coming inland. Rather it’s a safety-first measure to protect you when your plumbing fails or local drains get blocked up. Then check out the flood hazard boundary maps to see whether you are in a high risk area. If you are at risk, check your home insurance policy and if, as expected, it does not cover you, get quotes for federal cover.

 

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