Flood insurance is a necessity for many homeowners, although what it does and doesn’t cover can be confusing. Here’s what you need to know to get started.
- Flood damage, both to real and personal property, is always excluded in homeowners insurance and must be purchased separately as a rider. You should consider the risk for flash flooding, lake overflow, mudslides, or sewer backup. Most people who live in a high-risk area will have standard flood insurance. Flood insurance is a single peril insurance protecting against losses to buildings and their contents, not the land itself.
Flood insurance doesn't cover water damage from rain coming in through a hole in the roof caused by the same storm that flooded the streets, and it isn't hurricane insurance. To qualify as a flood, the waters must cover at least two acres or affect at least two properties. For a worst-case scenario where your home is completely destroyed or rendered uninhabitable for a time, a homeowner can get loss of use coverage for property replacement and living expenses for the period of time you're out of your home.
Hazard insurance policies come in two home replacement cost coverage options, guaranteed replacement and straight replacement. Guaranteed replacement pays to rebuild your home, even if the amount to rebuild exceeds your policy limit. If you can afford it and it's available in your area, this is usually the way to go.
Straight replacement is less expensive, but will only cover costs up to the policy's insured value. If your personal property's worth is significant, investigate the cost of replacement insurance. If your home contains unique and high-value items, consider purchasing insurance riders for these. Stay financially fit, friends.