Leslie Scism And
Oct. 30, 2012 3:22 p.m. ET
As Hurricane Sandy recedes, some homeowners will get a sick feeling as they survey the damage and pull out their insurance policies, learning that standard insurance coverage excludes flood damage.
Flood coverage is not part of regular homeowners insurance policies, which cover property damage from fallen trees, wind and fires. Instead, flood coverage is sold through specialized policies, dominated by the federal government's National Flood Insurance Program, covering 5.6 million consumers and businesses.
Despite advertising campaigns by the federal program, many people aren't aware they need the specialized flooding policies until too late. And October was too late for flood insurance shopping, since there is a 30-day waiting period for a policy to go into effect.
Policies can be purchased from local insurance agents and are administered by insurance companies but paid for by the Federal Emergency Management Agency.
The price tag for the flood program is about $585 per property annually, although the cost can be much higher in riskier areas. Lenders mandate the coverage for properties in areas that are deemed at high risk of flooding, but the policies are available nationwide.
The federal flood-insurance program provides coverage up to $250,000 for the structure of the home and $100,000 for personal possessions. For commercial properties, it covers up to $500,000 for buildings and $500,000 for their contents.
In New Jersey alone, properties are insured for $54 billion via 236,000 flood policies. Nationally, the program paid out $1.3 billion in claims for Hurricane Irene in 2011 and more than $16 billion for Hurricane Katrina in 2005.
Flood-insurance claims should be filed with the insurance company that sold the policy, often the same company as the primary homeowners' policy.
But unlike homeowners' policies, flood policies do not pay temporary relocation costs,
such as hotels or apartments. They also do not pay for damage in a basement, other than to the heating, air conditioning and water systems.
Another difference is that flood policies pay for the cash value of damaged goods, rather than their replacement costs, which is typically higher, according to Don Griffin, a vice president at the Property Casualty Insurers Association of America
Below are some tips on filing claims, because filing for a flood isn't so different than any other type of claim.
Make temporary repairs: Take "reasonable" steps to protect your property from additional damage, says trade group Insurance Information Institute. Save receipts for all expenditures because they will be part of the total settlement. If paying a contractor a large sum for temporary repairs, there may not be enough money for permanent repairs, the trade group warns. Beware of contractors who ask for large sums of money up front.
If relocation is needed, keep those receipts, too: Homeowners insurance, but not flood insurance, provides coverage for the cost of additional living expenses if a home is damaged by an insured disaster, such as wind damage or a tree that fell through the roof.
Prepare for the adjuster's visits: The insurance company may send you a proof-of-loss form to complete, or an adjuster may visit the home first. The more detail provided—a description of possessions, approximate date of purchase and what it would cost to replace or repair—the faster the claim generally can be settled, the trade group advises.
Don't throw out damaged items: Keep everything until the adjuster has visited. Photographing or videotaping the damage may help, especially of photos of important possessions were taken before the storm.
Keep copies of all materials submitted to your insurer: Also, record the names and phone numbers of everyone you speak to at your insurance company.