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How does flood insurance work?

July 15, 2021 Michael White
How does flood insurance work?

How much does flood insurance cost?

Think of the cost of flood insurance like you would with earthquake insurance—the price is determined by location. Those who live on the coast of British Columbia are most in need of earthquake insurance, and therefore they pay more than other Canadians. Similarly, when you inquire about purchasing flood insurance, an insurer assesses your home’s risk of damage, based on the history and likelihood of flooding in that area. Needless to say, the price tag can vary wildly.

“Insurers assess your risk by postal code,” says Dolan. “That’s how they come up with premiums. The higher the risk, the more you’re going to pay.” Additionally, “If you live on the 30th floor of a high-rise, your risk of overland flood damage is obviously much less than someone who lives at ground level.” (Not that tall buildings can’t be affected by flooding, they may still be deemed uninhabitable. Check with your individual insurer about what is covered for additional living expenses in such cases). 

“Unfortunately, about 10% of Canadians can’t purchase flood coverage because they’re in such a high-rated flood zone,” adds Dolan. Meaning either its price is too prohibitive or insurers will simply decline to offer it. According to an Insurance Bureau of Canada estimate, in 2019 only 39% of Canadian homeowners had access to overland flood insurance.

Dolan also points out that when shopping for a homeowners policy that includes flood insurance, be aware that some insurers impose a maximum dollar amount to avoid a large payout, in the event that a home sustains extensive damage or is destroyed. “Some insurers are becoming more selective about overland flood. They’ll offer it, but they’ll put a limit on it, like $50,000,” says Dolan. “As brokers, that makes us nervous, so if we can find a company that doesn’t put limits on it, we prefer that.”

Your deductible (the amount deducted from your insurance claim) may also vary greatly, from as little as $1,000 to as much as $50,000. The higher the deductible, the lower your monthly premium should be.  

How does flood insurance work and what does it cover? What about flood insurance contents coverage?

If your homeowners policy includes a flood insurance endorsement, you’re protected against loss or damage to your property and contents. But the nature of your coverage—including exclusions—depends on your insurer and where you live. For instance, some insurers offer coverage only in certain provinces, some exclude damage as the result of a tsunami or dam break, and some won’t insure you if your home has a reverse-sloping driveway. When you shop for your policy, you may opt for a basic endorsement that covers, say, sewer backup or a comprehensive plan that covers all possible flooding scenarios (minus any exclusions your insurer stipulates).

You may want to ensure that your policy also includes compensation for living expenses, should your home not be habitable in the aftermath of a flood. “Then you’ve got additional money to stay in a hotel, and purchase meals and other things you need for everyday life,” says Dolan.

Do I have to make a claim if my flood damage is minor?

Some homeowners may be tempted not to file a claim with their insurer if flooding has caused only minor cosmetic damage, or if repairs can be fixed by the homeowner. But Dolan recommends contacting your insurer, which will probably want to dispatch a professional to inspect the damage and make sure it’s not worse than it appears. “To you and I, the damage might not look substantial. But if it gets into the walls, mould could be a huge issue.”

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