Flood events over the past years have prompted many questions and much discussion concerning the coverage provided by a property insurance policy. Or, more importantly, what coverage is not provided. Standard property insurance policies exclude several perils, but most notably flood and earthquake. Fortunately, they are the only excluded perils for which you can buy coverage. The property policy can be endorsed to include earthquake, but flood is always purchased as a separate policy.
The basic flood insurance policy is provided by the National Flood Insurance Program, but can also be written through insurance companies approved by NFIP. All coverage, rates and flood zone determinations are controlled by the federal government. So, what is a “flood”? According to the policy it’s “A general and temporary condition of partial or complete inundation of two or more acres of normally dry land area or of two or more properties (at least one of which is your property) from: Overflow of inland or tidal waters; Unusual and rapid accumulation or runoff of surface waters from any source; Mudflow; or Collapse of land along the shore of a lake or similar body of water.” It’s important to note the “surface waters” can include broken water mains, construction runoff and clogged drainage ditches if two properties are affected.
Most areas are designated “participating communities” by NFIP and can purchase flood insurance. There’s a maximum standard coverage available for your building and for the contents. The annual premium in low flood risk areas is relatively small even for the maximum coverage. Consider this – during a 30-year mortgage you have a 9% chance of a fire, but a 26% chance of experiencing a flood. And, 20 to 25% of flood insurance claims come from low to moderate risk areas.
Earthquake insurance can be easily endorsed to your property policy before any area tremors. Studies indicate a magnitude 8.0 quake in Memphis (New Madrid fault) would cause minor damage here although that’s an educated guess and “minor” is a relative term. Brick and masonry buildings would suffer more damage than frame buildings. Foundation fractures or shifting could be very expensive. Earthquake insurance, to be affordable, carries a large deductible and is a percent of the amount of insurance, not of the loss. The minimum deductible offerings vary among the companies.
Your property is a large investment. If it’s damaged or destroyed you are still obligated for the mortgage payment – insured or not. No mortgage – then you’ll definitely want to rebuild. Weather patterns constantly change and minor earthquakes occur daily throughout in the U.S. We suggest you be proactive and strongly consider each of these coverages.