Now that the wind and rain from Hurricane Katrina has subsided, many homeowners will soon be faced with the overwhelming task of returning to their homes only to find them water-logged and mud-filled due to excessive flooding.
While it will not be easy, there is much that can be done to make the recovery process smoother and to minimize further damage to property according to the Property Casualty Insurers Association of America (PCI).
HOMEOWNERS INSURANCE VS. FLOOD INSURANCE
A standard homeowners insurance policy provides financial protection against disasters by insuring the home itself and the things inside it. Homeowners insurance is a package policy that covers both damage to property and the homeowners liability or legal responsibility for any injuries and damage to property caused on the premises. While damage caused by most disasters is covered, there are a few exceptions including damage caused by a flood. This must be bought as a separate policy.
The National Flood Insurance Program (NFIP) is the primary source for flood insurance in the U.S. The often catastrophic nature of flooding has kept most insurers from writing flood coverage. The NFIP was established by Congress 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 Mitigation Division, a component of the Federal Emergency Management Agency (FEMA), manages the NFIP, and oversees the floodplain management and mapping components of the program. Nearly 20,000 communities across the United States and its territories participate in the NFIP by adopting and enforcing floodplain management ordinances to reduce future flood damage.
In exchange, the NFIP makes federally backed flood insurance available to homeowners, renters and business owners in these communities. The “Write-Your-Own” (WYO) program was set up by FEMA to allow private insurers through their agents to write flood insurance policies. WYO insurers write the majority of the federally backed policies in the NFIP.
WHAT DOES FLOOD INSURANCE COVER?
Flood insurance covers direct physical losses by flood and losses resulting from flood-related erosion caused by waves or currents of water exceeding anticipated cyclical levels and accompanied by a severe storm, flash flood, abnormal tide surge, or a similar situation which results in flooding.
· The standard flood policy for homeowners covers structural damage, your air conditioner, furnace, water heater and cleanup associated with a flood. In addition, you can purchase coverage for the contents of your home as part of the flood policy.
· Buildings are covered for replacement cost but coverage for personal possessions is available on an actual cash value basis only. Coverage for the contents of basements is limited and usually only covers a home’s foundation elements and equipment that is necessary to support the structure (for example: furnace, water heaters, circuit breakers, etc.).
· There is a 30-day waiting period before the coverage becomes effective.
STANDARD FLOOD INSURANCE POLICY FORMS
The NFIP offers three Standard Flood Insurance Policy Forms. The policy type is determined by how a building is occupied. The three policy forms are:
· The Dwelling Form insures residential structures and/or contents and individual residential condominium units. Residential insurance for one-to four-family unit buildings and individual residential condominium units are written under the Dwelling Form and are eligible for up to $250,000 in building coverage and up to $100,000 on personal property coverage. On average, a homeowner policy costs about $400 a year for around $100,000 of coverage.
· The General Property Form insures residential buildings of more than four families as well as non residential buildings (schools, churches and businesses, etc.). Residential buildings containing more than four units are written under the General Property Form and are eligible for up to $250,000 in building coverage and up to $100,000 on personal property. Residential insurance may be purchased for building only, contents only or a combination of the two. Non residential insurance, for properties like schools and commercial structures, are written under the General Property Form and are eligible for building coverage up to $500,000 and $500,000 on personal property. Like insurance for residential properties, coverage may be purchased for building only, contents only or a combination of these.
· The Residential Condominium Building Association Policy Form (RCBAP) insures associations under the condominium form of ownership. Condominium associations are written under RCBAP Form and are eligible for building coverage, which includes all units within the building (and improvements), up to $250,000 times the number of units within the residential building. Personal property coverage is limited to $100,000 per building.
· The Preferred Risk Policy Form is a lower-cost option, for building and contents coverage on properties located in a lower risk areas. It is available for both residential and non residential properties.
Additional Benefits and Coverage
· Increased Cost of Compliance (ICC) – ICC coverage helps pay for the increased costs to comply with State of Community floodplain management laws or ordinances after a flood, when the building has been declared substantially or repetitively damaged. Coverage can be applied to elevation, relocation, demolition or flood proofing (non residential only), up to $30,000.
· Debris and Loss Avoidance – the Standard Flood Insurance Policy (SFIP) also provides other types of flood insurance coverage, including debris removal and loss avoidance measures (like the cost of plywood and sandbags).
WHAT IF YOU DON’T HAVE FLOOD INSURANCE
Federal Disaster Assistance may be available in the form of grants and loans if a flood has been declared a federal disaster. People who receive Federal Disaster Assistance for a flooded building will need to obtain flood insurance, which is one of the requirements for federal grants and low-cost loans. They will also need to maintain the flood insurance for the life of the loan.
“Due to the topography of New Orleans, the size of the storm surge and the heavy rains, much of the property damage caused by Katrina will be covered if you purchased flood insurance,” said John Eager, senior director of claims for the PCI. “Flood insurance is provided by the NFIP and largely administered through private insurance companies. In addition, the federal government will make funds available to FEMA to help rebuild properties damaged by Katrina.”
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