Flood Insurance Policies - Hard Lessons

Elements of a Worry-Free Estate Plan

In the month of August of this year and even early September, many areas in Michigan saw historic flooding and sewer backups after quick and intense storms blanketed various areas of the state. Based on several conversations I have had with clients regarding their homeowners insurance policies, many have learned the hard way about storm insurance coverage. Because many of the lessons learned were unfortunate for my clients, I feel it is important to discuss and understand the available coverage options and consider all of the information so that we, too, do not have to “learn the hard way.”

Flood Insurance and Sewer Coverage Are Not the Same Thing

Many communities across Michigan and indeed across the country have sewer lines that are aging. Pipelines that handle both storm water and sewage can be overcome during a deluge and back up into basements or other areas of homes and businesses. Many people don’t realize that they need to buy an endorsement to extend their insurance coverage to sewer backups in that the standard flood insurance provisions of a policy do not provide that type of coverage.

Sewer backup coverage might add $40 to $50 to annual premiums, according to information obtained from the Insurance Information Institute. A common mistake is made by individuals who assume that sewer backups are covered under the flood provisions of their policy and, therefore, fail to ask for the additional rider for the sewer backup coverage.

You Should Not File a Claim if You Are Not Covered

Filing a claim typically makes you a riskier customer from the insurance company’s perspective. As a result, the first step in any process where a loss has been incurred is to determine whether there is indeed coverage in place before initiating a claim to your insurance company.

Even Though Insurance Coverage May Not Apply, a Loss May Qualify for a Tax Break

Some personal losses can benefit individuals with respect to their federal income tax. However, federal tax rules have tough limits on personal losses.

First, you must reduce the casualty loss by $100 and you further must reduce the total of all your losses by 10% of your adjusted gross income. This means that if you face $5,000 in uncovered property losses but had an adjusted gross income of $50,000, you would not see any tax break under the normal tax rules. As a result, it is very hard to get the deduction, but nevertheless you should consult with your tax preparer or a CPA in the event you incur a loss that is not covered by your insurance.

Additional Storm-Related Insurance Tips

  • Consumers who believe their insurance company has treated them unfairly can contact their state insurance department. Find the link at www.naic.org and click on States & Jurisdiction Map.
  • Michigan consumers can file complaints about insurance companies at www.michigan.gov/difs.
  • If your coverage is issued through the National Flood Insurance Program, you should contact www.floodsmart.gov.
  • Earthquakes and flooding are not covered under standard homeowners insurance policies, so homeowners must secure separate insurance policies for one or both of these risks, if they would like to be covered for them, according to the Insurance Information Institute. In addition, flood insurance typically does not cover sewer backup damage, so therefore the existence of an additional rider for that coverage should be requested.

Michigan consumers have rights, including that insurers pay you within 60 days after you’ve given the company all of the information it asks for regarding a backup claim that is subject to coverage. Your insurance company must pay the part of your claim that is backed up by proof and pay the rest when proper evidence is sent.