Flooding is one of the most common and most destructive causes of damage to a property. After the water recedes, navigating the insurance claims process can be a daunting task. One aspect that makes flood claims particularly challenging is that The National Flood Insurance Program is subject to a different set of rules than those found in a typical property insurance policy.
All property owners should be keenly aware of any risk of flood that may exist for them. According to FEMA, one-third of the NFIP’s claims come from outside the designated high-risk flood areas.
Purchasing Flood Insurance
All NFIP policies have the same language and will have the same rates, regardless of the insurance company from which they are purchased. With this standard pricing, it is wise to buy from an insurance company that has a history of fairness and good service with their regular policy settlements. Companies will tend to be as liberal or as conservative with their NFIP policies as they are with their own policies. A company that generally provides the poorest payouts with its regular work will most likely adjust its flood losses the same way, even though the premium rate is the same no matter which company provides coverage.
Building coverage applies to the building structure itself, with some exceptions and extensions. This coverage extends to fixtures, machinery and equipment within the building, and includes a long list of specific property items, including for example: awnings and canopies, fire sprinkler systems, venetian blinds, ventilating equipment and permanently installed wall mirrors.
Since no definitions are offered for most of these items, controversy often can occur between policyholders and the companies’ adjusters over the existence and extent of coverage. Also included under building coverage are materials and supplies for use in constructing, altering or repairing the building while stored in a fully enclosed building, on the premises or on an adjacent property; and buildings in the course of construction before being walled and roofed. Certain conditions apply to each, which should be checked before relying on coverage for any item.
Personal Property Coverage
NFIP coverage for personal property applies to property inside a fully enclosed insured building. Unlike most property insurance policies, there is no coverage for property in the open or in vehicles on or near the premises. The policy provides for either household contents or “other than household contents” but not both. This could produce a problem for people who have a business or office in their home unless they obtain separate coverages for household contents and business property at the same location. Also note that when not insured under the building coverage, any of the following items are covered under personal property: kitchen appliances, air conditioners, carpet, and outdoor equipment and furniture stored inside the insured building.
How Flood Damages Are Valued
The value of flood damage in the Dwelling Form is based on either replacement cost value or actual cash value. (Manufactured or mobile homes are subject to a special loss settlement provision.) Replacement cost value (RCV) is the cost to replace that part of a building that is damaged (without depreciation). To be eligible, conditions that must be met are:
- The building must be a single family dwelling
- Be your principal residence, meaning you live there at least 80 percent of the year
- Building coverage must be at least 80 percent of the full replacement cost of the building or is the maximum available for the property under the NFIP.
Actual cash value (ACV) is replacement cost value at the time of the loss, less the value of its
physical depreciation. The repairs/ replacement must be completed before the withheld depreciation is paid. (They are paid the ACV regardless.) Some building items such as carpeting are always adjusted on an ACV basis. For example, wall-to-wall carpeting could lose between 10-14 percent of its value each year, depending on the quality of the carpeting. This depreciation would be factored in the adjustment. Personal property is always valued at ACV.
Wrap Up: Here Are Things To Keep In Mind
Important things to remember about flood insurance are:
- Contents and finished items in basements are excluded from coverage;
- Walkout doors are required in garden-style structures where the door is lower than the finished floor of the subgrade room for full coverage on the lower level
- Remember that the damages are paid on an actual cash value basis — not replacement cost. However, the homeowner’s building damages can be settled on a replacement cost basis (provided replacement cost coverage is purchased) and are still subject to the replacement cost provisions
- Purchase the flood policy from a company with whom there is a comfort level in settling claims
- Additional coverage can be purchased from private insurance companies, usually at higher premiums than the NFIP rates
- Be there with the insurance adjusters when damages are estimated
- Consider hiring a public adjuster
Have questions about your property insurance claim? Feel free to contact Stark Loss for more information about how a Public Adjuster can help.