What Does Flood Insurance Cover?

While the terms and conditions of each policy will vary, flood insurance is a type of insurance designed to help cover losses incurred to the physical structure of the home or commercial building (Building Coverage) and personal assets in the home or commercial building (Contents Coverage) resulting from a covered flood. Some flood insurance policies may also provide coverage for the cost of living if you are forced to relocate while your home is being repaired (Additional Living Expenses) or loss of income if your business is temporarily closed (Business Interruption or Loss of Rents Coverage).

Since flooding can be an unpredictable event, flood insurance can be an important risk management solution that can help protect against losses caused by a covered flood. Typical homeowners insurance policies and commercial business owners policies commonly exclude flooding, which is why it is important to consider obtaining a separate flood insurance policy.

Historically, it had been challenging to predict the location and severity of flood losses. Because of the difficulty in evaluating flood risk, by the mid 1960’s, many homeowners insurance companies and commercial property insurance companies began excluding coverage for damages caused by a flood. In 1968, this led the federal government to create the National Flood Insurance Program (NFIP), which helped make flood insurance available for qualifying homes and buildings.

While for many years, the NFIP had been the main source for obtaining flood insurance, in the last decade, technological advances in flood modeling have led insurance companies to develop private flood insurance products to compete with the NFIP.