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The basement of my home recently suffered some flood damage. I filed a claim with my home insurance company, but it doesn't want to pay for the damages. Can my insurance company do this?

Yes, your insurance company can refuse to pay for flood damage. Standard home insurance does not cover flooding, and it does not cover damage caused by seepage from the ground into a basement. Seepage is considered a maintenance problem, not "sudden and accidental" damage, and is excluded from home insurance coverage.

Let's talk about the definition of "flood," which is one of the most confusing terms in home insurance. Insurers define flood narrowly as water that comes from a river, stream, lake, or other body of water. If a pipe burst and filled your basement with a foot of water, the insurance company would not consider the mess a flood. Standard home insurance policies would provide coverage in such a case, as well as if a washing machine overflowed or a dishwasher sprung a leak.

To get coverage for true flooding, you need flood insurance, which is a special policy backed by the federal government with cooperation from local communities and private insurance companies. People who live in moderate- to high-risk flood zones have to get flood insurance to qualify for mortgages. But others who live outside a floodplain or in a low- to moderate flood-risk area can qualify for flood insurance -- and at lower rates than they would pay if they lived in a riskier area.

Congress created the National Flood Insurance Program (NFIP) in 1968 so homeowners, renters and business owners could purchase insurance. Although flood insurance is relatively inexpensive, most Americans fail to purchase it -- even though the chance of flooding is greater than the chance of fire during a typical 30-year mortgage, according to the NFIP.

The federal government sets prices for flood insurance, and private insurance companies who sell the policies compete on service.

For more, see Who needs flood insurance? and water damage: seven home insurance scenarios.

Last updated: Dec. 23, 2010
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