Flood Insurance: What Does It Really Cover?

Southern California has already experienced some of the first rains of El Niño and more are on their way now. Before the rain drops started falling, officials from the Federal Emergency Management Agency have sounded a lot more like salesmen than bureaucrats, pushing a sales pitch for flood insurance that plays on the dangers of El Niño while advocating the benefits of protecting your property. But officials are worried that people still mistakenly assume they are covered for floods under their standard homeowner policies.

While FEMA announced a recent 12% increase in the number of flood insurance policies written statewide — a rise the agency said was the “first of its kind in recent history,” only 9% of homeowners in the West have flood insurance, according to industry estimates.

Even those people who have flood policies may not be fully covered. The National Flood Insurance Program draws careful distinctions about what kind of damage it covers. And although FEMA says that buying insurance “puts you in control,” some victims of previous storms say that even with flood insurance, they were left feeling helpless.

“The average person has a very simplistic understanding of insurance: I either have it or I don’t,” said Amy Bach, executive director of the consumer advocacy group United Policyholders. “If you’ve never had a serious loss, chances are you really have no idea what you’re covered for.”

Insurance experts say there are still very few options for consumers. Congress is considering a bill that would help develop a more robust private flood insurance market, but in the meantime, the national program is the only choice for all but the wealthiest policyholders. And for some, buying flood insurance is not a choice at all. Homeowners with a federally backed mortgage who live in a federally mapped flood zone are required to purchase coverage.

Experts have warned that this winter’s El Niño could generate flooding, mudflows and landslides. But the entire spectrum of storm-related damage is not covered by homeowner insurance or even flood insurance. In general, damage from falling water is covered by homeowner insurance whereas damage from rising water requires flood insurance.

The National Flood Insurance Program says it covers “direct physical loss” caused by “flood,” which it defines as “an excess of water on land that is normally dry.”

Damage from what FEMA calls “mudflows” — rivers of liquid and flowing mud — is also covered by flood insurance. But FEMA distinguishes between mudflows and what the agency calls “moving saturated soil masses” that go down a slope without “a flowing characteristic.” As you can see, there are some things that have a bit of a gray area and room for interpretation.

Flood insurance does not cover damage from landslides or other so-called earth movements. For example, damage to a house caused by a hillside that tumbles down after a rainstorm is not covered. Insurance experts say landslide insurance is available through only a very small number of specialized carriers and, like private flood insurance, is likely to be expensive.

Has a client ever asked you about the flood plains when purchasing a home? What do you do to help buyers understand the potential risks of flooding if their home is in a mapped flood zone?

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