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Defining flood insurance
As Geoff Doidge writes in the Australian Property Investor, flood is usually defined (for insurance purposes) as when water from a river, creek, lake, reservoir, dam or navigable canal overflows onto normally dry land. “Flood cover is seldom part of basic property insurance policies, and generally has to be added separately” he says. “The insurance company will usually review the property's location, site aspects and flood history before providing the cover. If you haven't specifically asked for flood cover on your policy, you probably don't have it.
Flood insurance to suit your location
Doidge adds that it’s worth finding out if you are living in an area that has previously been susceptible to flooding. If this is the case flood cover would without a doubt be a wise option (and necessary requirement). Your local authority can provide details from their records if you are unsure as to whether or not your property is at high risk from floods or particularly exposed to storm damage, for example if the building is positioned in a valley or on low-lying land. Conversely, if your property is positioned in a location that is clearly less likely to be at risk, such as high on a hill, then it is unlikely to be worth undertaking the extra cost. Bear in mind other dangers, however, if you are positioned on a hill, such as landslide, subsidence or erosion.
Insurance time frame
It’s worth considering that insurance relating to natural occurrences, such as flood or storms, may only protect your property against damage caused during a short, specific event rather than damage caused gradually across a longer time frame. If a natural disaster occurs causing near instant and clear damage whereby the total duration is a short period of time, such as with a storm, earthquake, explosion or similar, an insurer will probably be willing to pay out, but they may object to an existing problem only exacerbated by a storm or flood.
For this reason, insurance broker Paul Ede advises property owners to discuss with their broker exactly what eventualities they need covered, and to be sure that the policy achieves this goal. Similarly, policyholders need to be aware of any limits on monetary value, and other possible limitations of their policy. For example, if a policy limits the payout for any one item to $20,000, and the property being insured is worth considerably more than that, the property (and any other item individually worth more than $20,000) would need to be listed separately, to be acknowledged as special contents requiring extra cover.
Flood insurance and inconsistency
A lack of affordable and consistent flood insurance is one of the biggest issues facing Australian communities, according to the Insurance Australia Group. “It's a challenge that we have begun tackling but it is one that is fraught with complexity,” the company says. “Although the issue poses a significant reputation risk to insurers, we believe it is a whole-of-society issue affecting local communities, governments and insurers. The annual cost of insuring a home against flood varies significantly, depending on its location - from virtually nil to thousands of dollars. There is no cover for all types of flood because of difficulty in providing affordable premiums when the risk of flood is known to be high - there comes a point where enough premium simply could not be charged to cover the cost of claims without being prohibitively expensive, forcing up the cost of insurance for all other customers.”
Natural disasters, such as floods and storms, are at best frustrating and at worst heartbreaking. Damage to homes in particular can be total and devastating, leaving occupants homeless in extreme cases. The financial consequence of such an event is something to consider before the need arises rather than when the unexpected (and unfortunate) occurs. You can’t plan for random natural catastrophe, but you can seek professional advice about the reassuring safety net of insurance.
