Purchasing Flood Insurance vs Hazard Water Loss

Often when homeowners or real estate investors are looking to purchase a new property, they forget to ask, “Is the property in a flood zone?”

The good news is you have choices, you could purchase flood insurance if your property is in a flood zone or  outside the flood zone. An insurance agent could check with the property address, if the dwelling is in a flood zone. Currently, you could purchase flood insurance through FEMA or through the WYO “Write Your Own” flood program through private insurers. Flood insurance is available for homeowners, business owners and even renters.

There is a difference between how water losses are considered to be a flood loss, vs a covered hazard insurance water loss.

Hazard insurance policies would provide coverage for Water Damage that occurs as a sudden and accidental discharge of water. This can often be from a broken pipe, toilet, refrigerator, washing machine, or HVAC system doesn't drain properly, causing a flood. The resulting damage can be severe, depending on the location of the leak and the amount of time it has been leaking. Water damage can often occur on second floors and then can leak to the lower levels and cause extensive and expensive claim damage.

I regularly, get the question from investors: “Is water damage covered that originates from the roof?” This is always reviewed on a case-by-case basis but can be covered if it is related to a covered peril from a storm (hail).

Even though each claim has its own merits, flooding events like surface ground water or flash flood are normally excluded from hazard insurance policies. 

Flood damage is damage to the home, personal property, or commercial building as a direct result of a flooding event. There should be significant rain over a short period of time to create a flooding event or flash flood.

If the rental property or commercial building is in a high-risk flood zone, the property owner must have a separate flood insurance endorsement or policy to have coverage for a flood caused by weather events.

Flood insurance is often required by the mortgage lenders for properties that are in a designed flood zone. The most common flood policy is normally covering the building or home.

I always recommend to the investor to include coverage for property inside the building as well as a loss of rents or additional living expense coverage. These additional costs for additional living expenses and contents can sometimes be greater than the damage to the building or home. I review many flood policies and I have found that many policies do not includes these important coverages.

Flood insurance will provide money to repair or even rebuild a home, if it is damaged or destroyed by flood. When a homeowner has to file a claim, they are only responsible for paying the deductible. As a result, the homeowner retains the home, keeps making their mortgage payments, and everyone will be happy.

According to FEMA, a flood insurance policy covers the following:

• The insured building and its foundation
• Electrical and plumbing systems
• Central air conditioning equipment, furnaces, and water heaters
• Refrigerators, stoves, and built-in appliances such as dishwashers
• Permanently installed carpeting over an unfinished floor
• Permanently installed paneling, wallboard, bookcases, and cabinets
• Window blinds
• Detached garages up to 10% of building property coverage (detached buildings other than
  garages require a separate building property policy)
• Debris removal           

*Federal Emergency Management Agency. National Flood Insurance Program: Summary of Coverage, Page 4. Accessed, Jan. 15, 2021.

If you notice above, what is not covered is the loss of use/additional living expenses and or loss of rents. However, some private carriers could cover it.

In Colorado, purchasing the right flood insurance can be difficult. Before purchasing your new property ask to see if the property is in a high-risk designated flood zone before initiating the property purchase. Feel free to contact me and I can assist you with the correct flood policy for your investment property.