What is Flood Insurance?

flooded homes Do you have flood insurance on your home? Flood insurance can be very important to have, and may be required, if your home happens to be located in a flood zone. On the other hand, if you are certain that your home is not situated in a flood zone, then you might have no need for flood insurance. This is one of the types of insurance you should consider when you are ready to purchase a new home.

What is flood insurance? The simplest explanation is that flood insurance is an insurance policy that will cover the cost of property damage in case your home is affected by natural flooding. Obviously, if you live right next to a river, lake, or other large body of water, there is potential for you to be affected by flooding if the water rises. On the other hand, if you live in the middle of a desert, then flood insurance might not be something you have any reason to invest in. Where you live determines what kind of insurance you will need due to natural disasters. If you are in a high risk area, you will be required to purchase flood insurance.

There is a National Flood Insurance Program that is administered by the Federal Emergency Management Agency (FEMA). They will send you an annual flood insurance information packet to everyone who has flood insurance. Flood insurance protects your home itself. It covers the repair or replacement of the house itself, the electrical system, the plumbing, central air conditioning equipment, furnaces, and water heater. It will also include refrigerators, cooking stoves, dishwashers, and any other built in appliances. Permanently installed carpeting that is sitting over unfinished flooring is also covered by a flood insurance policy.

What about the contents inside your home? Flood insurance also covers the replacement of clothing, furniture, and electronic equipment (such as a computer or a television). Curtains, and carpeting that was not included in the other part of flood insurance is also covered by the contents section of the flood insurance policy. It also covers portable and window air conditioning units, portable microwaves and dishwashers, and washers and dryers.

How will you be reimbursed for these losses? It will either be in the form of Replacement Cost Value (RCV), or Actual Cash Value (ACV). Replacement Cost Value means you will get what it costs to replace the damaged property with a comparable new version of it. Actual Cash Value means you will get less money to replace your property with. It is the actual cost of the item, minus the replacement cost.

Image by U.S. Genealogical Survey

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