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Damages to property caused by weather-related flooding are typically not included in standard homeowners and renters insurance policies. Flooding is typically excluded because floods, unlike misfortunes like fire or theft, often cause massive damage to everyone in a community, which can make the risk to the insurance company too high to be profitable. This does not mean that flood insurance is unavailable, however. Most insurance agents will offer flood insurance, but usually only on certain conditions and at a higher rate than standard home insurance. A flood insurance rate is typically determined by flood risk, community flood precautions, and value of property to be insured, among other things.
In most countries, insurance companies are free to offer flood insurance policies to clients on a discretionary basis. The relevant flood insurance rate is typically determined by calculating the insurance company’s risk as a factor of the overall chances of loss, and the total monetary amount at stake. Some insurers will sell flood insurance that covers flooding related to burst pipes or air conditioning unit malfunctions, but these policies are generally tightly worded to exclude flood damage incurred through natural means.
Topographical maps and flood plane diagrams usually come into play where weather-related flood insurance policies are concerned, and are used as a sort of flood insurance map to chart rates. Houses at high elevations and seated away from flood planes are usually more economical to insure, because the risk of flooding is relatively low. Policies for homes and buildings on riverbanks, coastlines, or in low-lying, heavy-rain areas typically cost significantly more. A flood insurance rate for a flood-prone house is usually higher simply because the risk is higher.
In most cases, it is disadvantageous for an insurance company to insure houses in known flood zones. The natural inclination of companies in these situations is usually to either refuse to issue insurance policies outright, or else make the flood insurance rate so expensive as to essentially make the insurance unavailable for all but the wealthiest homeowners. Without insurance, homeowners stand to suffer significant losses when and if floods do ultimately come. Most national governments have intervened in order to ensure that flood insurance is reasonably available to most citizens at an acceptable flood insurance rate.
The United States, Australia, and Great Britain are among the many countries that have laws protecting flood-prone residents’ rights to flood insurance. These laws vary from government subsidies for flood insurance to legal mandates that insurance be provided to certain communities. In the United States, flood insurance is required to be available in communities that have accepted the terms of the Federal Emergency Management Agency’s National Flood Insurance Plan (NFIP). Even NFIP and other flood insurance policy programs have variable rates, however.
Aside from geographical location, factors like the value of property included in a house and the likelihood of injury or medical crises influence a flood insurance rate. A large house full of valuables will naturally cost more to insure than a small, minimally furnished apartment. Depending on the policy, claims will typically be framed in terms of actual value or replacement value, which also influences the overall policy cost. An actual value policy will reimburse losses at the depreciated value of the goods, which is usually more economical. Replacement value policies will provide the money needed to purchase an equivalent item new, which usually amounts to more than the lost item was worth.