Flood Insurance vs Water Backup coverage explained

[Drew Maconachy]

I am an insurance broker who represents RE investors across the country.  A common question that I get is, "Why am I buying water backup coverage if I have a flood policy?"  The answer is relatively simple: they cover two different types of loss.

A typical property policy is going to exclude flood coverage, especially if you are in a flood zone.  You are going to have to buy back this coverage, and if in a severe flood zone, that will have to be done though the National Flood Insurance Program, a government backed entity.  This coverage is weak and you should work hard to find an actual insurance company to offer flood insurance on one of their policies.  So what is flood coverage?  Flood coverage is triggered when surface water comes into your asset from the outside.  This is obviously common is floods, but can also happen in heavy rains.

What's the difference between that and water backup coverage?  Water backup is the backing up of drains or pipes that backflows into your property.  This is the most common type of property claim, and can lead to very expensive claims if the backup happens on an elevated floor and gets into the calls and ceilings of the units below.  While this loss is the most common trigger on a property policy, I would say that less than half of the policies that I inherit have coverage for it.  Also, many of the ones that I have it have a $5,000-$25,000 sublimit, which in almost all cases is not adequate.

Quick summary:

1. If you are in a flood zone, make sure you have flood coverage.  Don't assume you have it, because unless you ask, you likely wont.

2. All RE investors should purchase some form of Water backup coverage.  If you have a multistory building, you should be buying higher limits of this coverage.  This is also not on every policy, and if it is, it is likely a nominal amount of coverage.  Need to make sure you have adequate coverage.  Talk with your insurance agent about what that appropriate amount is.  Don't skimp on this coverage to save money.

I hope you find this helpful!  Reach out if I can answer any questions you may have.