Water, Water, Everywhere

By Ina Fernandez, CPA

A client commented on the fact that although he was carrying insurance coverage significantly in excess of the value of his home, he still wasn’t covered for damages from the “flood of the century” that hit the Detroit area recently.

Unfortunately, he isn’t alone.  Many beleaguered home and business owners are finding this out as well, when they finally get through to their insurance carriers.  If your home is located in a flood plain, most banks require you to carry flood insurance.  For the rest of us, we may well find ourselves truly soaked, treading water, or… (fill in your own pun here).

What is covered by typical flood insurance policies?

Unfortunately, standard insurance policies do not cover floods; you need a separate rider on your policy specifically for flood insurance.  The FEMA website (www.FloodSmart.gov) has helpful information on flood insurance, recovery, and resources available to policyholders.  Most flood insurance policies cover structural damage to your home and contents above ground.  However, below-ground-level coverage (basements and crawl spaces) is often limited to structural components like the home’s foundation and mechanical items like the furnace, water heater, and fuse box.  You will also need to purchase “contents” coverage for items like washer, dryer, freezers, carpeting, and other personal items stored in basements.

Sewer Backup:  Then it gets more complicated. If your basement is flooded because of sewer backup, you will need to also carry sewer back-up coverage or sump-pump coverage, if that is what caused the damage.  Many cities in the Detroit metro area are accepting claims for restitution of damages caused by sewer backup in the recent storm, to assess the extent of damage should the area qualify for Federal aid.  So check your city’s website for the claim forms.

Water Seepage:  Seepage caused by groundwater buildup under a home is not covered, as it is considered a result of poor maintenance.  Similarly, the removal of mold caused by water damage is often contested by insurance companies as preventable, even if you have mold coverage. 

Good News: If a storm breaks a window or door or damages a roof or walls, allowing rain to enter and flood a home, that damage is covered by typical homeowner policies. Also, while flood insurance is expensive, sewer backup or sump pump coverage is cheaper.

Steps to take after a flood:  It is too late to buy flood insurance after disaster has struck, as there is a 30-day waiting period.  But you can take steps to mitigate the impact of flood damage by calling your insurance agent right away to see if you are covered by your current policy.  Photograph the flooding and damaged personal items before discarding them.  Itemize the damaged items and track down receipts to support your claim.  Have your home inspected for structural damage and disinfect affected areas as soon as possible to prevent mold. 

To quote Vivian Greene, “Life isn’t about waiting for the storm to pass…It’s about learning to dance in the rain.”  So, to make sure you can dance in the rain during the next “the flood of the century,” don’t forget to buy those riders as soon as you can.

Ina Fernandez CPA has over 25 years of investment experience, and is Managing Director at Birmingham, Michigan-based investment advisory firm, Liberty Capital Management, Inc.