In the wake of Hurricane Harvey, the Insurance Information Institute (I.I.I.) was out Thursday with a primer on the difference between water damage covered under a homeowners policy and damage covered by flood insurance. The Institute reported 40% of homeowners think that standard homeowners insurance covers flood damage caused by heavy rain, which it does not.
“Hurricane Harvey has, once again, shown that tropical storm systems are often major rain events, rather than wind-related. This brings strong motivation for everyone to consider flood insurance, even if their mortgage lender does not require it,” said Loretta Worters, vice president of Media Relations with the I.I.I.
However, according to the I.I.I.’s May 2016 Consumer Insurance Survey, nationally only 12% of homeowners have flood insurance, the lowest number since 2010 and down from 14% in 2015. Furthermore, the I.I.I. notes the number of people buying NFIP policies nationwide has plunged by 549,000—almost 10%—since 2009, even as coastal development surges and sea levels rise. That rise coincided with hefty gains in premiums for flood insurance.
Standard homeowners and renters insurance will cover wind damage from Hurricane Harvey. Flood coverage, however, is excluded and is available in the form of a separate policy from the federal government’s National Flood Insurance Program (NFIP) and a few private insurers. Congress created the NFIP in 1968 in response to the rising cost of taxpayer-funded disaster relief for flood victims and the increasing amount of damage caused by floods.
The NFIP provides coverage for up to $250,000 for the structure of the home and $100,000 for personal possessions. Replacement cost coverage is available for the structure of a home but only actual cash value coverage is available for possessions. Replacement cost coverage pays to rebuild a home as it was before the damage. Actual cash value factors in depreciation so that the older belongings are, the lower the payout. There are also limits on belongings stored in a basement—while essentials to the home such as a water heater, oil tank and electrical panel are included in the coverage, furniture, carpeting and other non-essentials are not. Additional living expenses and food spoilage are also not covered. The NFIP’s Summary of Coverage provides more details.
Flood insurance has a deductible and is administered through most leading insurance companies, who can help settle your claim with the NFIP.
Excess flood insurance provides protection above the NFIP limits. It is available from private insurers for higher valued properties and for those living in a community that does not participate in the NFIP. Excess flood policies have no deductible and cover Additional Living Expenses (ALE), also known as Loss of Use coverage, which pays the additional costs of temporarily living away from home if it is uninhabitable due to the flood damage. This includes hotel bills, restaurant meals and other living expenses incurred while your home is being rebuilt.
Excess flood insurance can be purchased from specialized companies through independent insurance agents, or from regular homeowners insurance companies that have arrangements with a specialized insurer to provide the coverage to their policyholders.
For homeowners impacted by Harvey who did not purchase flood insurance, disaster assistance may be available through grants from the Federal Emergency Management Agency (FEMA) to help pay for temporary housing, emergency home repairs, uninsured and underinsured personal property losses and medical, dental and funeral expenses associated with the disaster. Residents who were affected can apply for assistance online at www.DisasterAssistance.gov or call 800-621-3362 or (TTY) 800-462-7585, 7 a.m. to 10 p.m. seven days a week. FEMA’s Housing Assistance program is available, regardless of income, to anyone who has suffered damages or losses in disaster-declared counties. However, aid for other losses such as personal property, vehicle repair or replacement, and moving and storage expenses is income-dependent.
FEMA does not pay to return a home to its pre-disaster condition. FEMA provides grants to qualified homeowners to repair damage not covered by insurance, but these grants may not pay for all the damage. An SBA disaster loan, on the other hand, generally provides the funds to fully repair a home. To be considered for a grant for these types of losses, the applicant must complete an application for an SBA loan.
