Insurance 101: Do Your Clients Know the Difference Between Homeowners Insurance and Flood Insurance this Hurricane Season?

The 2024 hurricane season just wrapped, officially ending on Nov. 30, 2024, with two major storms making news and breaking records as of this writing (Hurricanes Helene and Milton). Even though the official 2024 “hurricane season” is over, tropical storms and cyclones can hit at any time, and it’s never too early to prepare for 2025. With hurricane damage still in the news and top of mind, insurance producers may be fielding their clients’ questions about coverage, including what they have, what it covers, what it excludes, and what other coverage they might need.

If you’re a licensed producer, agent, or insurance broker, we know you’re already well trained on these topics. But who doesn’t love a refresher? Plus, if you find this information valuable, you can always share it with your clients to help answer their questions quickly and easily. So read on to learn what your clients need to know about standard homeowners policies, flood insurance policies, and the differences between them. 

Homeowners insurance vs. flood insurance: understanding the basics

While most homeowners assume their standard policy covers all water-related damage, this dangerous misconception could leave them facing catastrophic losses. As their trusted insurance advisor, you play a crucial role in helping clients understand these two distinct types of coverage and why they might need both.

What homeowners insurance typically covers

While every policy is different and legal requirements may vary state to state, this is a brief overview of some of the most common coverages for standard homeowners insurance policies. 

• Wind damage from hurricanes
• Rain that enters through wind-damaged windows or roof
• Tree damage to structures
• Lightning strikes
• Fire damage
• Personal property damage from covered perils
• Additional living expenses if the home becomes uninhabitable due to a covered loss

Notably, what’s missing from this list is “flooding.” That is, any water that enters the house from outside, that wasn’t due to the structure being damaged by wind or physical impact from a fallen tree. 

What flood insurance typically covers

There are several types of flood insurance, including policies administered through the National Flood Insurance Program (NFIP), private insurers, and parametric style flood insurance policies. The coverage limits and premium prices may vary, but a flood insurance policy should typically cover: 

• Rising water from storms or overflowing bodies of water
• Storm surge
• Ground collapse due to flooding
• Mud flows
• Standing water damage
• Foundation damage from flood waters
• Personal property damage from flooding (when you purchase contents coverage)

As you can see, typical homeowners insurance provides very little protection for damage caused by water inside the home compared to a flood insurance policy. Consumers who don’t understand the distinction may be shocked to learn they aren’t covered when water enters their house and wreaks havoc on their home and its contents. 

Why your inland clients may need flood insurance too

It might be easy to get your clients with coastal properties to understand their need for a separate flood insurance policy, but inland homes are increasingly at risk for flooding too, and it’s important to communicate these risks to your clients as they’re making the decision to accept or decline flood protection.

Urban flooding risks: Modern development has created new flood risks in inland areas. When your clients say “But I don’t live near water!” remind them that:

• Concrete and asphalt prevent natural ground absorption
• Storm drainage systems can become overwhelmed
• “Flash floods” can occur anywhere during heavy rains
• Nearby construction can change historical water flow patterns

Climate change and increased impact: Recent years have shown that historical flood data may no longer predict future risks. For example, climate change has:

• Brought about more frequent extreme weather events, even in places they historically haven’t occurred 
• Created higher-intensity rainfall
• Caused changes in seasonal precipitation patterns
• Created new flood zones in previously “safe” areas

At the end of the day, regardless of where you live, it only takes one particularly heavy rainfall to overwhelm a property’s water containment system and cause flooding. When homeowners understand this, and understand that their traditional homeowners insurance policy won’t be there for them, the case for a flood insurance policy becomes more obvious. 

Water damage vs. flood damage

One of the most important concepts to explain to clients is the distinction between water damage (which might be covered under homeowners insurance) and flood damage (which requires separate flood insurance). Here are some practical examples to share with clients:

Examples of water damage that a homeowners insurance policy may cover: 

• A tree falls through the roof during a hurricane, allowing rain to enter
• A window breaks from wind, letting water in
• A pipe bursts during a freeze
• Wind-driven rain enters through existing openings

On the other hand, these examples would not fall under a standard homeowners policy and would require flood insurance coverage: 

• Storm surge from a hurricane
• River overflow
• Flash flooding from heavy rains
• Groundwater seepage
• Rising water from any source

Make the distinction clear with coverage examples

To help clients understand these distinctions, let’s look at two examples of what might be covered in different scenarios. 

Hurricane damage

If a hurricane touches down and comes through your client’s home, these types of damages are likely to occur: 

• High winds rip shingles off the roof
• Rain enters through the damaged roof
• Storm surge floods the ground floor (Only flood insurance covers)
• Trees fall on the home, damaging the property 
• Mold develops from flood waters (Only flood insurance covers)

While homeowners insurance would cover some of these losses, only flood insurance would cover damage caused by storm surge and mold. Not having a flood insurance policy leaves clients in this situation with significant gaps in their coverage and the potential for huge out of pocket costs. 

Heavy rainfall 

In this case, there’s no hurricane, but a full week of heavy rain causes damage to a home, including: 

• The home’s gutter overflows, causing the roof to leak 
• The ground around the home becomes saturated and water seeps into the basement
• A nearby local creek overflows
• The home’s sump pump fails

In this case, a standard homeowners policy might leave a client with little-to-no protection. It’s possible that additional riders such as “sump pump backup” can be added to the policy, but only flood insurance will cover the damage done by saturated ground and overflowing creeks and rivers.

Common flood insurance exclusions and limitations

At this point, your clients might be thinking a flood insurance policy is a great idea and that having one will ensure they’re completely covered for every possible water-related event. But it’s important to remind them that every type of insurance policy comes with exclusions and limitations. Flood insurance is no exception. 

We’ve already mentioned the most common homeowners insurance exclusions related to water and flood damage. For a flood insurance policy, it’s also likely to exclude: 

• Temporary housing and additional living expenses, particularly if your plan is through the NFIP
• Damage to decks, patios, and other outbuildings outside the home’s footprint
• Personal property stored in your basement
• Currency and valuable papers
• Cars and other vehicles
• Landscaping and exterior improvements

Still, even with these exclusions, if a client faces a devastating event, flood insurance could provide hundreds of thousands of dollars of coverage for a relatively low annual price 

Special considerations for flood and homeowners insurance

Make sure you’re familiar with the fine print and can explain these types of specifics to your clients before they make a purchase. This is not a complete list, but some common considerations include: 

Named storm deductibles in homeowners insurance

Many homeowners policies have special deductibles for named storms or hurricanes, often calculated as a percentage of the dwelling coverage rather than a flat amount. So, in the case of a hurricane causing a tree to drop on a client’s home, breaking the roof and allowing water to enter, the homeowner may have to pay a much higher deductible than what’s listed on their homeowners policy. 

Waiting periods in flood insurance

Remind clients that flood insurance typically has a 30-day waiting period before coverage takes effect, with a few exceptions such as the purchase of a new home. This means they can’t wait until a storm is approaching to purchase coverage.

NFIP vs. private flood insurance

While the NFIP provides most flood insurance policies in the U.S., private flood insurance options are increasingly available. Each has its own advantages and limitations, like lower or higher premiums and coverage limits, that you should discuss with your client. 

Best Practices for Client Education

These tips don’t just apply to homeowners and flood insurance, but they’re worth repeating. As a licensed insurance agent or producer, make sure you’re putting these best practices into use. 

• Review coverage annually, especially before seasons that impact your specific geographic location (hurricane season, wildfire season, tornado season, etc.) 
• Use visual aids to explain coverage differences
• Provide real-world examples of claims scenarios
• Document coverage discussions and recommendations
• Help clients understand their flood zone and actual risk
• Explain the cost-benefit analysis of flood insurance, even in lower-risk areas

As extreme weather events become more common, helping clients understand the distinction between homeowners and flood insurance isn’t just good customer service – it’s essential risk management. By clearly explaining these differences, helping clients make informed decisions about their coverage needs, and documenting these conversations and their outcomes, you’re protecting both your clients’ financial future and your own as well as your agency’s reputation

Managing insurance producers in high-flood-risk regions

Homeowners insurance is experiencing a crisis across the U.S. as more frequent and severe weather events have prompted some insurance carriers to stop selling certain policies, or exit many state markets entirely. At the same time, private (often specialty) carriers are increasingly offering flood insurance policies as the future of the NFIP is uncertain. This makes it more important than ever for insurance carriers, agencies, and MGAs/MGUs to have an airtight distribution management strategy to ensure they’re capturing all available opportunities to sell both homeowners and flood insurance policies. 

What does that mean? Simply put, insight into your distribution channel, and the ability to manage it and pivot on a dime if needed, are vital to your company’s survival. Because which products can be sold, and where, are ever-changing targets, organizations with flexible and quickly scalable distribution channels will win where others fall short.

For example: Does your insurance agency have a real-time, accurate, transparent view into where every one of your producers is licensed (and in what LOAs) so that you can focus your efforts on the most profitable geographies and lines of business while minimizing the cost of maintaining licenses in states that are so high-risk you can’t sell policies? 

Or, if you’re an insurance carrier, do you have complete visibility into how many producers are appointed to sell your products across each state? If not, you could be wasting tens of thousands of dollars on state appointment fees in markets you don’t have an appetite to write business in, while ignoring opportunities in other geographies. 

If this type of intelligence into your distribution channel sounds complicated, see how AgentSync makes it simple. For help assessing the current state of your distribution management strategy and execution, we’ve also created a resource to guide you. Download our Distribution Management Assessment today to gain insights into your personal areas of strength and opportunities for improvement. Or, if you’re ready to take action, contact us to get started.

About AgentSync

AgentSync builds modern insurance infrastructure that connects carriers, agencies, MGAs, and producers. With customer-centric design, seamless APIs, automation, and unparalleled service, AgentSync’s solutions provide data intelligence and streamlined onboarding and compliance management processes that reduce costs, increase efficiency, and get producers ready to sell in hours instead of weeks. Founded in 2018 by Niranjan “Niji” Sabharwal and Jenn Knight, and headquartered in Denver, CO, AgentSync has been recognized as one of Denver’s Best Places to Work, a Forbes Magazine Cloud 100 Rising Star, and as an Insurtech Insights Future 50 winner, and was ranked 65 in Forbes – America’s Best Startup Employers 2023. To learn more, visit https://agentsync.io/