Is flood insurance included in your policy?

It’s never been more important to know where you stand in terms of home insurance for flood damage, particularly thanks to the increasing frequency of extreme weather events.

The easiest way to know if flood insurance is included in your home insurance policy is to grab a copy of your terms and conditions and check. That being said, it is a standard type of event that is typically included in most policies - but there can be exceptions.

Unfortunately, in areas where flooding has a higher likelihood, some insurers will not cover homeowners. Alternatively, a significant premium may be charged for coverage. 

This can be challenging for home buyers where banks advise they must have flood insurance to get approval for a mortgage, and for homeowners who previously had this coverage, only for it to be removed by the insurer.  

Is flooding covered by home insurance?

As home and contents insurance policies typically include coverage for flooding as standard, you simply need to check the insurance policy terms and conditions to see that this event is included before you apply.

While most insurers do include flooding in their policy, in some cases you might need to pay extra to get the cover. Moreover, some insurers could have a cap on flood damage coverage, meaning the amount you’ll be reimbursed after a successful claim may not cover the full cost of repairing the damage. A few insurers even allow you to ‘opt-out’ of flood cover to lower your home insurance premiums.

Even in the absence of flood insurance, your insurance policy may include coverage for storm-related damages, or other types of water damage. The extent of coverage for water damage to your home or belongings can vary based on whether it resulted from floods, storms, rainwater, runoff, or a combination of these factors. It's important to note that different insurers may have slightly varied definitions for each, potentially impacting the eligibility of your claims.

Consider shopping around and comparing home and contents insurance with flood cover when you’re looking for a high-value policy.

What does flood insurance cover?

Insurance policies typically include coverage for specific events, each with its own distinct definition. That being said, according to the Insurance Council of Australia (ICA), Australian regulations include a standard definition of flood, which was introduced in June 2012:

“The covering of normally dry land by water that has escaped or been released from the normal confines of: 

• any lake, or any river, creek or other natural watercourse, whether or not altered or modified; or
• any reservoir, canal, or dam.“

Flood insurance may assist homeowners if your property structure, like floors, foundations, and walls, is damaged. It may also cover your belongings such as electronics, appliances, and furniture.

Your flood insurance may allow you to claim:

• Repairs to the home and contents
• Replacement of contents
• Rebuilding costs for the property
• Temporary accommodation

In the event the damage is caused by the flash flooding of creeks, rivers, drains or heavy rains, insurers focus on the source of the water at the time of your claim. If the flooding or damage is because of a storm, insurers will often want to know how soon after the storm did the flooding occur.

Most policies include cover for damage caused due to rainwater runoff (flooding because of heavy rainfall and inadequate drainage), but not many insurers cover homeowners for damage due to a rise in seawater or tidal flooding. 

The exact level of flood coverage on your home and contents insurance will depend on your insurer and the policy. There is no one set figure that you may be covered by, so it’s best to speak to the issuer for more specific detail before you sign up for the policy.

Is it mandatory to have flood insurance?

While some home loan providers may encourage applicants to have home insurance before they will approve their mortgage, you typically do not need to have specific policies covered. Having home and/or contents insurance that includes flood damages is not compulsory, nor are home insurers under any obligation to provide cover for floods in home insurance policies. 

After the 2011 Queensland floods, the Federal Government conducted the Natural Disaster Insurance Review (NDIR). They found various problems on the supply side, some related to how the insurance industry operates and others requiring legislative action.

Interestingly, the Review did not push to make flood insurance mandatory, and hence insurers are not legally bound to include flood cover in their policies. Households have the freedom to decide whether to bear the risks or not, giving them the choice to take out flooding insurance as they see fit.

There are a few insurance companies that now only offer policies that include flood cover, which has raised home insurance premiums in certain areas. Before signing on the dotted line, consider how flood-prone your area is, and whether getting flood cover as part of your policy is worth the potentially higher premium.

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