Flood Insurance: What Does It Cover?

September 05, 2023
A wife calls her flood insurance provider during a water emergency.

What Is Flood Insurance?

Flood insurance can be an important risk mitigation solution to help protect against losses suffered as the result of a flood. In general terms, a “flood” is defined as a temporary condition where normally dry land is inundated with water.  Such a condition may be caused by events such as storm surges during hurricanes, rapid accumulation of water during a heavy rainstorm or a river or stream overflowing its banks.

What Does Flood Insurance Cover?

While the terms and conditions of each policy will vary, flood insurance is a type of insurance designed to help cover losses incurred to the physical structure of the home or commercial building (Building Coverage) and personal assets in the home or commercial building (Contents Coverage) resulting from a covered flood.  Some flood insurance policies may also provide coverage for the cost of living if you are forced to relocate while your home is being repaired (Additional Living Expenses) or loss of income if your business is temporarily closed (Business Interruption or Loss of Rents Coverage).

Since flooding can be an unpredictable event, flood insurance can be an important risk management solution that can help protect against losses caused by a covered flood. Typical homeowners insurance policies and commercial business owners policies commonly exclude flooding, which is why it is important to consider obtaining a separate flood insurance policy.

Historically, it had been challenging to predict the location and severity of flood losses. Because of the difficulty in evaluating flood risk, by the mid 1960’s, many homeowners insurance companies and commercial property insurance companies began excluding coverage for damages caused by a flood.  In 1968, this led the federal government to create the National Flood Insurance Program (NFIP), which helped make flood insurance available for qualifying homes and buildings.

While for many years, the NFIP had been the main source for obtaining flood insurance, in the last decade, technological advances in flood modeling have led insurance companies to develop private flood insurance products to compete with the NFIP.

NFIP: the Federal Flood Insurance Option

NFIP is a federal program administered by the Federal Emergency Management Agency (FEMA) and is governed by federal laws and regulations.  Obtaining a flood insurance policy through the NFIP can be beneficial because it is backed by the U.S. Treasury and generally accepted by most mortgage companies. However, while the terms and conditions of each flood insurance policy will vary, the coverage provided by a NFIP flood insurance policy may not be as comprehensive as compared against policies issued by private flood insurance companies.  For example, limited coverage options may be available for non-primary residences and rental properties as well as coverage for damages to a basement.

Private Flood Insurance

During the past decade, new flood modeling technologies have emerged which help more accurately evaluate flood risk. This, in turn, has allowed private insurance companies to better evaluate risk and offer flood insurance options.  While the terms and conditions of each policy will vary, flood insurance policies obtained though the private market may offer higher insurance limits and broader coverage options as compared against NFIP sponsored polices.

It is therefore important to consult an insurance agent who understands the private flood insurance market.  A qualified agent can help you make the best decision for your home, family and business.

The Bottom Line

There are a variety of flood insurance options which may be available due to the rapid development of the private flood insurance market.  It is important to choose insurance agent who has extensive knowledge of both NFIP flood insurance and private flood insurance, so you can make informed insurance decisions that work for you, your family and your business.

Acrisure’s experienced team of flood professionals understand flood risk and flood insurance, leveraging industry-leading technologies to provide personalized flood insurance options from the some of best flood insurance companies in the marketplace. Reach out to Acrisure to learn more about your flood risk and what options are available to help you protect against losses from potentially devastating flood damage to your home or business and help you find the right flood insurance solution.

Stay tuned for more valuable information about flood risk and flood insurance!

Check out Acrisure Insights for more information about flood insurance, including why flood insurance is important, why you should consider buying flood insurance, why some people are required to purchase flood insurance while others are not, and other topics about insurance that you should know.

About the Author
Dan Freudenthal
President, Flood Practice Leader

Mr. Freudenthal is the national Flood Practice Leader at Acrisure. He is a nationally recognized expert in the area of flood risk and a regular speaker at leading risk management and commercial real estate conferences specializing in flood risk. Mr. Freudenthal has also published numerous articles in real estate, risk management and insurance industry publications.

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