Generally, typical building insurance does not cover property damage that is the result of hurricanes, floods or tropical storms. Sadly, most homeowners and businesses learn this fact the hard way, after their homes and businesses have been ravaged and destroyed. In order to fully understand what is and what is not covered by building insurance, it is important to distinguish the very key differences between general building insurance and building insurance that also has flood coverage.
At the most basic level, general building insurance protects the structure of a building, meaning the walls, windows, roof, baths, toilets, fitted kitchens, etc. Any permanent fixture of a building is usually covered. This coverage protects against damage caused by fires, lightning strikes, explosions within or around the building, earthquakes, storms and flooding. It also protects against theft, vandalism and the damage caused by falling trees or moving objects, like cars, for example. However, general building insurance, while it does by definition protect a building against damage caused by floods, does not necessarily completely cover a building and its content from damage caused by storms that cause major flooding. There is where the need for building insurance with an added clause outlining storm and flood protection is needed. General building insurance only covers the structure, not the contents, a completely different insurance plan is needed to cover both of those.
Buying a home or another building is a large-scale investment, one that must be met with the utmost, in-depth research into obtaining reasonable and correct building insurance lest any form of disaster strike. In purchasing any sort of property, lenders will require a minimum amount of insurance as, just like the owner, they want to protect what they are investing in. Unlike other types of insurance however, building insurance is not always required, but it is highly recommended.
The types of coverage, in terms of reimbursement, vary in three ways, starting with replacement cost coverage which is financial relief by replacement of the loss value of the property. The second is actual cash value coverage, which is the same as replacement cost coverage, just minus the depreciation value attributed to the property. Third is extended replacement cost, referring to payment over the coverage limit if costs of construction to make repairs have increased. However, this type of coverage only applies to 25%, and anything above that is the responsibility of the property owner.
Calculating Cover Explained
The coverage in any of the three of the aforementioned types provided by a building insurance plan is determined by one of two ways: either it is sum-insured or it is bedroom-rated. These two types of coverage are what make up the definition of the term 'calculated cover.' Simply, calculated cover refers to the calculations by which an individual arrives at their selected, desired level of coverage. Also factored into the calculations for cover are what are called risk factors. Risk factors are contingent upon geographical location and that location's susceptibility to certain damage caused by weather and more.
Sum-insured building insurance is found by the individual deciding how much coverage is needed and giving that estimate to the insurer, who then calculates a building insurance premium based on that estimation. A bedroom-rated building insurance policy is found exactly as it sounds. It does away with any need to do mathematical calculations and instead provides an insurance policy based on the number of bedrooms or rooms a building has. Both these types of cover share a common theme.
Ultimately, when a building insurance plan is sum-insured or bedroom-rated, the final amount of cover needs to be the cost of rebuilding of the prospective building, including any demolition, clearing and building fees. The defining element is that this cover cost provided by a decent building insurance plan is never the same as the original market value of a property. That value begins depreciating as soon as the building is established and used.
Flood Insurance and Why to Get It
An obvious reason for obtaining building insurance that includes coverage in the case of flooding is living in an area that is predisposed to flooding annually. Areas that are coastal or near a large body of water like a lake or river that frequently become engorged are highly susceptible areas for flooding. Residences or businesses in these areas should, of course, carry building insurance that places an emphasis on flood protection. Set out by the National Flood Insurance Program (NFIP), there are actually several reasonable plans available to those who live in such areas, thus making the search for an affordable and credible flood insurance plan easier. To put this into perspective, a flood insurance plan from NFIP will provide maximum coverage to the amount of 250,000 dollars for property damage and an additional 100,000 dollars for content damage and replacement.
But even flood insurance does not cover everything and these key exclusions that it does not cover need to be specifically noted. For instance, flood insurance only is applicable to water damage to a building when that water came from outside the building. It does not apply to instances where, say, the washing machine malfunctioned and water flooded the laundry room.
Another exclusion commonly missed is that swimming pools and any landscaping around the building or home are not covered by flood insurance and so either replacing or fixing them are considered an out-of-pocket cost for the property owner. Other out-of-pocket costs that property owners must take responsibility for are damage to any physical currency and important paper damages as flood insurance does not cover those areas either.
The sooner a flood insurance policy is obtained, the better, as flood insurance policies cover not only floods during hurricane seasons but also covers damages caused by heavy rainstorms, coastal flooding, flooding during the winter from snow melting, levee dam failures and more. If you are living in an area predisposed to such types of flooding, having such an insurance policy will only benefit your standard of living, providing for a better state of mind and a better life.