Reconsidering Flood Insurance

By Susan Stellin

IN the aftermath of Hurricane Sandy, homeowners and renters who have insurance are discovering what it covers — and what it doesn’t — while those with minimal or no insurance may be recalculating their risks.

As images of waterlogged houses continue to dominate the news, the biggest surprise may be that most homeowners’ and renters’ policies do not cover damage due to flooding. To get that coverage, you generally have to buy a separate policy through the federal government’s National Flood Insurance Program, but many people skip it — even though floods are the most common natural disaster in the United States.

“Only 18 percent of Americans have flood insurance,” said Loretta Worters, a vice president of the Insurance Information Institute, a nonprofit sponsored by the insurance industry. According to the National Flood Insurance Program, 25 percent of flood claims come from people in low- or moderate-risk areas; last year New Jersey, New York and Pennsylvania were the top three states for these claims. But people who have recently bought or refinanced homes in flood zones are more likely to have flood insurance, because banks will not lend in those high-risk areas unless borrowers are insured. Property insurance is complex, and benefits and deductibles vary depending on the policy you buy, but here are answers to some common questions about coverage for storm damage.

Q What’s the difference between rain damage and flooding?

A The government defines flooding as the overflow of inland or tidal waters — including a storm surge, a mudflow, or the rapid accumulation of surface waters that can occur from a sudden rainstorm. Water leaking through the roof is not in the same category, which basically applies to water sloshing around at ground level, not raining down from above.

Q Does insurance pay for tree removal?

A If a tree falls and hits someone’s home, insurance companies will pay to fix the damage and remove the tree.

“It doesn’t matter whose property it’s on,” Ms. Worters said; “whoever it falls on is the person who has to make the claim. But if it lands on the ground or on bushes it won’t be covered. You’ll have to remove it yourself.”

One exception: if the tree hits electrical wires, the local power company should take care of the removal. And if an adjuster determines that a tree fell because of a homeowner’s negligence — if, for instance, it was rotting — the insurance company might dispute the claim. (Owners of cars damaged by falling trees should submit auto insurance claims.)

Q Is wind damage covered?

A Damage from high winds is generally covered, but if a storm becomes a hurricane, or wind speeds exceed 74 miles per hour, the claim might be subject to a “hurricane deductible” ranging from 1 to 5 percent of insured value. In New York, these deductibles typically apply to communities near the coast, including the five boroughs of New York City as well as Suffolk, Nassau and Westchester Counties.

Officials in New York, Connecticut and New Jersey have already announced, however, that these deductibles should not apply to damage caused by this storm, because it did not have hurricane-force winds when it made landfall.

“If you’re in the 5 percent zone and you have a $400,000 house,” said J. Robert Hunter, director of insurance for the Consumer Federation of America, “that would be a $20,000 deductible, so it’s a big impact.”

He cautioned that some insurance companies might fight the states on this point, or change their policy language to include a broader range of storms in the future. If you’re not familiar with your provider’s policy, New York’s Department of Financial Services publishes a helpful chart outlining how insurance companies define storms that activate these deductibles, what the companies charge and which counties are covered.

Q What does flood insurance cover?

A. The government’s FloodSmart.gov Web site has detailed information about the National Flood Insurance Program, but in a nutshell, you can buy flood coverage for your home (up to $250,000 in damage) and some of its contents (up to $100,000). A standard policy covers the building, electrical/plumbing systems, carpeting and major appliances like stoves, refrigerators and water heaters, but you need to pay an additional premium to cover contents like clothing, furniture and electronics.

There are a lot of things flood insurance doesn’t cover, including swimming pools, plants and fences; coverage for basements and other areas below ground is limited, so even if you have a flood policy you should review what you store there.

“If you have a floor that’s half under the street level,” Mr. Hunter said, “that may be considered a basement for the purposes of the program.”

Although the program is administered by the federal government, flood policies are sold by insurance companies, which also sell “excess flood insurance” to customers who want more than $250,000 in coverage. FloodSmart.gov has a useful list of questions to ask your agent about flood coverage. There is a 30-day waiting period before coverage begins, so don’t wait until the next storm is brewing to buy a policy.

Q How much does flood insurance cost?

A Rates for flood insurance are set by the government, so they don’t vary by company, but they do differ based on factors like the age of your building, your flood risk, what floor you’re on if you live in an apartment building, and the deductible and amount of coverage you want.

“The average policy for flood is about $637,” said Eric Vaith, an assistant vice president with the insurance provider USAA, “but that varies greatly depending on what risk you are. If you happen to be in coastal exposure areas, it could be thousands of dollars. If you’re not in a greatly exposed area, it’s not that expensive.”

USAA is one company that does provide coverage for flood damage as part of its standard renters’ insurance policy, because coverage is restricted to the contents of a home, Mr. Vaith said, not structural damage, which would be far more expensive.

Q What if you don’t have flood insurance?

A If you live in a region that is declared a federal disaster area, you can apply to the Federal Emergency Management Agency for assistance even if you don’t have flood or other property insurance. Visit DisasterAssistance.gov or call 1-800-621-FEMA (3362) for details on submitting a claim, which may involve a grant or a loan. But don’t assume the federal government will pay all of your expenses; many storms do not qualify as disasters, and payments are usually much lower than what an insurance policy would reimburse.

Q Are temporary living expenses covered?

A Most homeowners’ and renters’ policies cover additional living expenses if you’re temporarily displaced — for instance, if a tree falls on your house and you have to move out while it’s being repaired. This typically includes payment of hotel bills, restaurant meals or a temporary rental; check your policy, because there are probably limits on how much your insurance company will pay and for how long.

The coverage may also apply if you are subject to a mandatory evacuation order, though probably not if you check into a hotel because you lost power during a storm but there was no damage to your home.

“State Farm policies cover additional living expenses for people who are displaced by damage, what we call a direct physical loss,” said Holly Anderson, a State Farm spokeswoman. “Being displaced due to a power outage would not qualify for reimbursement for additional living expenses.”

Q Does insurance cover spoiled food?

A When a storm is bearing down, most people stock up their refrigerators and freezers, but if the power goes out, much of that food is likely to go bad. Some companies reimburse policyholders for spoiled food, possibly subject to a deductible, but others don’t.

For instance, State Farm’s homeowners’ and renters’ insurance offers coverage for food spoilage, Ms. Anderson said, but the payment is subject to your policy deductible. USAA also covers food spoilage, up to $500 for both its homeowners’ and renters’ policies, and does not charge a deductible.

If this is your only loss due to a storm — and you didn’t have expensive steaks in your freezer — it may not be worth filing a claim. Insurance companies monitor how often customers file claims, so you risk higher premiums if you experience multiple losses. Consider eating the cost of those steaks.