Ask Gerald: What Does Flood Insurance Cover?

Q: I’m buying a house and I think it’s in a flood zone. I want to make sure that my family and I are protected. What does flood insurance cover? (3 important facts about flood insurance) Henry, Boulder, CO
A: That’s a great real estate question, Henry and one that’s very important particularly given the more extreme weather we are experiencing as a result of global warming. I actually worked briefly as an actuary for an insurance company many years ago not long after Hurricane Andrew. So to answer your question, flood insurance covers direct physical loss caused by flood. What I’m going to do is I’m going to give you 3 important facts about flood insurance that you may not know:
1. Contents coverage must be purchased separately. So Flood Insurance covers physical damage but not damage or loss to the contents of your home—that must be bought with a separate insurance policy.
2. Flood insurance is not what’s known as a valued insurance policy, which pays the limit of liability in the event of a total loss. So, in case of a claim, flood insurance will only pay the replacement cost or the actual cash value of damages not the amount of your coverage.
3. Flood insurance is not a guaranteed replacement cost policy. A guaranteed replacement cost policy will pay the cost to rebuild regardless of the limit of liability. So, flood insurance does not pay more than the policy limit. What that means for you is in order to protect yourself from a total loss, you need to make sure you aren’t underinsured and covered for at least the total replacement cost of your home.
Thanks for your question, Henry. For more real estate tips and for information on my real estate coaching program, visit I’m Gerald Lucas and I’ll see you again soon.