Monday, May 6, 2013

A Flood of questions - Are you covered by your insurance?

There has been some crazy flooding up north lately, and it got me thinking about Insurance. Would my house be covered by insurance if there was a flood?

Thankfully, I don't have to worry too much about a massive flood - I live only a few KM from the top of a cliff. No rivers are going to wipe out my home!

However, what about runoff, or heavy rain, or if my pool breaks and floods my house?

The sad and complicated answer to this question is:  It Depends.

Call your insurance provider, and find out. Some times the term "acts of god" are thrown around.
This amuses me, as in my opinion, Insurance companies are nothing more than an algorithm that calculates the amount of money they make, vs the amount of money they pay out, and for what causes. "God" was written out of the Insurance industries equation a long time ago, as insurance companies are more than willing to leave you out of house and home if you're not covered!

For example:

It costs more to insure a house with a wood fireplace.
Why? Over the years, they have figured out that houses with fireplaces are 0.01% more likely to suffer fire damage. So if they insure 100,000 houses with fireplaces, odds are, one will burn down, as a result of having a fireplace. If each house cost 300,000 dollars, they'd need to charge you an extra 3 dollars a year to cover their costs.  Naturally, some years, more houses may burn down (colder winters? more fires? etc) that's all entered into this "magical" calculation, so they charge more than that 3 dollars a year, to build up a "float" in case of a sudden increase in these fires.

They do this to almost every aspect of your house.  "Oh, you have a fuse panel instead of a breaker panel?" +.08% chance of an electrical fire (I'm making up numbers here) Another few bucks.

All these variables add up, and the insurance company figures out how much to charge you, and to make a healthy amount of profit.

But when it comes to an "act of god" aka Flood/hurricane/earthquake/volcano/forest fires, etc your regular home insurance policy does not cover this.

Each variable they look at affects your pricing, However an "act of god" has the potential to wipe out an insurance company financial reserves (and a few neighborhoods) very easily.

Look at Hurricane Katrina - over 300,000 homes were destroyed. Average cost of a home being hundreds of thousands of dollars, plus your belongings... We're looking at Billions of dollars. There's no way a company could pay out all those people. All those people were left "low and wet" ("High and dry" seemed to be inappropriate...)

Water is kind of a Tricky thing.

You're probably covered if:

  • A pipe bursts
  • Your roof leaks*
  • A Pool breaks and floods your house (provided the insurance company was aware you have (or had) a pool)

You probably are NOT covered if: 

  • Your basement leaks
  • A storm results in flash flooding
  • A river/lake floods
  • Standing water drains into your home, resulting in damage
  • Sewer Backs up.
  • Property Drainage Issues

And it gets even a bit more complicated...

Some Scenarios:
Roof Leak:
If your roof leaks, and damages your drywall, furniture, floors, etc, Your insurance policy will probably cover the Damage to your home.  However, they will NOT pay to get your roof fixed.
If you fail to get it fixed, it will be negligent on your part, and they would deny any further claims.
But: if a Tree falls, and wrecks your roof, and results in the leak, They'll pay to remove the tree, repair the roof, and fix the water damage as well.

Pipe Burst:
If your Pipes burst when you are home, you are covered, However, if you were on vacation and turned off the heat and they froze, they'll deny the claim. Its pretty interesting (read: horrifying) as to what you THINK you are covered for, and what you actually are covered for.

All this being said: If you can name it, there's a specific insurance policy to cover it.
  • Volcano insurance: Check
  • Earthquake Insurance: Semi-Sketchy Check
  • Flood insurance: Super Check
  • Forest fire Insurance: Check

People have even had their Tongues insured! (I'm not kidding here - There's a professional Ice-cream taster in the states that has his tongue insured, as well as a baby-food test taster in the UK)

Bottom line: Call your insurance company. Or read your policy closely.

1 comment:

  1. This is a great reminder! People should really invest on insurance for lots of reasons, especially to secure ourselves and our possessions in the event a crisis occurs. But it would be best to check the coverage of the insurance you want to get. Read every stipulations and conditions before signing it. Anyhow, reading this makes me thankful to have an insurance that covers these kinds of disaster. It's actually a relief.

    >Cayla Dupont <