Is flood damage covered by homeowners insurance?

Q:

Is flood damage covered by homeowners insurance?

A:

To put it simply, flood damage, by itself, is usually not covered by your typical homeowners insurance policy.

Flood, as a standalone peril, is typically excluded in fire, named perils, and broad form homeowners policies because it is considered to have the potential for catastrophic loss and adverse selection. Only those most at risk of flood would buy flood insurance, which would negate the law of large numbers used by insurers to manage risk. Insurance companies would also run the risk needing to pay out huge sums if a flood were to happen in an area where they have a high concentration of clients. This actually became the subject of a legal battle in Louisiana after Hurricane Katrina damaged tens of thousands of homes and businesses. Flood was excluded in the insurance policies but if the insurers had to pay, they would have had to pay billions (see Does Homeowners Insurance Cover Natural Disasters? to learn more). Needless to say, very few companies would have the cash on hand to take a hit like that and remain solvent.

That said, there are still two common ways to insure against flood:

  1. Resultant Damage: If flood is the result of an insured peril, it would be covered automatically.
  2. Endorsement: Some insurers will offer a flood endorsement or a private contract for an additional cost. However, they may restrict the definition of flood in the policy terms.

Of course, terms and conditions vary by locale and from insurer to insurer, so be sure to check the wording of your policy or ask your broker or agent if you're unsure.

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Written by Jacques Wong
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Jacques grew up around the insurance industry and began actively participating in 2013. Since then, he has gotten a Level 2 license, won an Insurance Council of BC award in 2015 for academic excellence in the insurance licensing courses and educates insurance professionals through PNC Learning.   Full Bio