The Value: Flood Insurance Is Worth It
Flood insurance is worth the investment for the protection and peace of mind it brings. Flooding can be an emotionally and financially devastating event. Just one inch of flood water can cause more than $25,000 in damage to a home.
But with flood insurance, your clients will be protected.
The average flood insurance claim payment in 2017 was more than $90,000.
A coverage limit is the highest amount a policy will pay for a covered loss. If your client has damage or losses over the amount of their policy limit, your client is responsible for those costs.
The National Flood Insurance Program (NFIP) offers the following maximum limits for most flood insurance policies:
- Building coverage can insure your client’s residential building's structural elements up to $250,000, or your non-residential building at up to $500,000.
- Contents coverage can insure your client’s belongings at up to $100,000 for residential policies and up to $500,000 for non-residential policies. Contents are covered for Actual Cost Value (ACV), which is the value of the item at the time of loss—not the item's purchase price. Replacement cost coverage is not available for contents.
Agents play a crucial role in helping clients understand what is and isn’t covered with flood insurance.
Contents and building coverage must be purchased separately (for the Preferred Risk Policy, there's an option for combination coverage), and there are always separate deductibles. Building coverage covers the physical structure of the property, while contents coverage insures the contents of the property, including personal belongings, appliances, and other valuables.
- The electrical and plumbing systems
- Furnaces, water heaters, heat pumps, and sump pumps
- Refrigerators, cooking stoves, and built-in appliances such as dishwashers
- Permanently installed carpeting over an unfinished floor
- Permanently installed paneling, wallboard, bookcases, and cabinets. The damage must be directly caused by flood water. Cabinets that were not damaged by flood water are not covered, even if they match cabinets that were damaged by flood water
- Window blinds
- Foundation walls, anchorage systems, and staircases attached to the building. There is an exclusion for “loss caused directly by earth movement even if the earth movement is caused by flood”
- A detached garage used for limited storage or parking. Up to 10 percent of the building coverage limit can be used, but will reduce the total amount of building coverage available
- Cisterns and the water in them
- Fuel tanks and the fuel in them, solar energy equipment and well water tanks and pumps
- Personal belongings such as clothing, furniture, and electronic equipment
- Portable and window air conditioners (easily moved or relocated)
- Portable microwave ovens and portable dishwashers
- Carpets not included in building coverage (carpet installed over wood floors, etc.)
- Laundry washers and dryers
- Certain valuable items such as original artwork and furs (up to $2,500 per item)
- Food freezers and the food in them (but not refrigerators)
- Damage caused by moisture, mildew, or mold that could have been avoided by the property owner or which are not attributable to the flood
- Damage caused by earth movement, even if the earth movement is caused by flood
- Additional living expenses, such as temporary housing, while the building is being repaired or is unable to be occupied
- Loss of use or access to the insured property
- Financial losses caused by business interruption
- Property and belongings outside of an insured building such as trees, plants, wells, septic systems, walks, decks, patios, fences, seawalls, hot tubs, and swimming pools
- Currency, precious metals, and valuable papers such as stock certificates
- Most self-propelled vehicles such as cars, including their parts
Additionally, the cause of the flooding matters. For example, damage caused by a sewer backup is only covered by flood insurance if the backup is a direct result of flooding; the damage is not covered if the backup is caused by some other problem.
For a more complete list of what is and isn’t covered, review the Summary of Coverage guide. This document provides general information about deductibles, what is and is not covered by flood insurance, and how items are valued at the time of loss.
How much will flood insurance cost?
Flood insurance premiums vary depending on factors such as the construction date and flood risk of the property. As an agent, clients rely on you to provide accurate price quotes that consider the full flood risk of a property and that provide the complete coverage they need. You should encourage clients to get a quote for both building and contents coverage. In most cases, they are separate coverages with separate deductibles.
NFIP flood insurance rates do not differ from company to company or agent to agent. This means, instead of having to compete for business based on rates, agents can focus on competing for business based on customer experience and satisfaction. All policy premiums include certain fees and surcharges, so inform your clients about these when discussing a price quote.
The amount clients pay for a policy is calculated based on factors such as:
- Year of building construction
- Building occupancy
- Number of floors
- Location of contents
- Flood risk (e.g., its flood zone)
- Location of the lowest floor in relation to the Base Flood Elevation (BFE) on the flood map
- Deductible and amount of building and contents coverage
PRPs: The preferred policy for clients with a choice
The NFIP’s Preferred Risk Policy (PRP) offers lower-cost protection for properties in areas of moderate to low flood risk. PRPs can be purchased for as little as $325 a year, and offer the same protection as a standard rate policy.
PRPs help you retain your customers and increase your commission income. When flood insurance is a choice rather than a requirement, PRPs are the right choice.
What is a moderate- to low-risk flood area?
Areas of moderate or minimal flood hazards are shown as B, C, X on a FEMA flood map.
Areas designated as AR and A99 on a flood map indicate areas that are behind a levee currently under construction or repair. Though the risk of flooding is higher in AR and A99 zones, Congress authorizes FEMA to provide the PRP to property owners in these areas in anticipation of the reduced risk of the levee project.
PRPs and map changes
During a community map change, agents can help clients understand their lower-cost flood insurance options.
For property owners whose buildings are newly identified to be in a high-risk flood area, they may be eligible for a low-cost rating option called the Newly Mapped Procedure. They must purchase a PRP within 12 months of the new flood map’s effective date to take advantage of this rating option.
Similarly, clients who are no longer identified to be in the high-risk flood zones are strongly encouraged to keep their protection and convert their standard high-risk policy to a lower-cost PRP.