The Active Home Loan Manager

What You Need to Know About Flood Insurance

It’s important to think about more than your home loan when buying a property. You also have to consider its susceptibility to natural disasters.


When was the last time you looked at your insurance policy? Are you covered if you experience flood damage? It’s an important question to ask, especially in certain areas of Australia.

More insurers have adjusted their products so that they offer flood insurance for homeowners. This comes after several states experienced record flood levels. Both Queensland and New South Wales have had to deal with flooding. The effects on homeowners can often be catastrophic.

If you don’t have flood insurance, you can’t claim for anything that you lose in a flood. Your little piece of real estate may get ruined and you’ll have nothing to show for it afterwards. That’s what makes lenders so wary of offering home loans for properties in flood zones.

Let’s look at what you can expect if you want to add flood cover to your insurance policy.

What’s the Cost?

Flood cover doesn’t come cheap. You will have to pay more than you would for a standard home insurance product. For example, you’ll have to pay a higher premium if your insurer decides your home is in a flood zone.

Furthermore, many insurers command a higher excess for flood cover. This could range from anywhere between $200 and $2,000.

How Do Insurers Define Flood Cover?

Because flood cover is a fairly new concept in the Australian loan industry, you may find that its definition changes depending on the insurer. As a result, you need to spend some time deciphering your policy to make sure you get what you need.

You’ll find phrases like “inundation of normally dry land” crop up when insurers try to define floods. This basically means that your property is near a watercourse. Speak to your insurer to find out what they consider a watercourse to be.

Be wary about flash flood coverage. While you may need it, you also have to understand how insurers define it. Many won’t allow you to claim for a flash flood if the damage occurred more than one day after the flood itself.

You may also find your policy doesn’t cover events you might consider as flooding. For example, many policies with flood cover don’t offer cover in the event of a tsunami. You might also not be able to claim for a leaking washing machine, or something similar. However, you will also find that some insurers offer cover for such “freak” occurrences. This is usually offered separately to your regular flood cover.

The most important thing to remember is that you should ask for written confirmation about anything that you’re uncertain about. Verbal confirmation of your cover may not be enough. Some insurers may go back on a verbal contract. To be sure, you need to get it all in writing.

What to Do Next

It’s prudent to ensure that you have the proper insurance if you want to buy a property in a flood-prone area. If you don’t, you may find it difficult to secure a home loan. We recommend that you do the following before buying a property in a flood area:

This information is general in nature and you should always seek professional advice when making financial decisions.

Add a Comment

Alexi Neocleous

With over 20 years experience, Alexi has written extensively a wide cross section of financial topics. These topics range from financial planning, mortgages, property commentary and all points in between.

Blog

You might also be interested in

Mortgage debt surging among older Australians

Most Australians think they’ll own their homes outright by the time they retire, but a new report details how mortgage debt among older Australians blew out by 600% between 1987 and 2015.

Home loan hack: take advantage of great rates with uno’s smart tech

With so many new rates appearing daily, finding the best rate for your circumstances can be hard work – especially if you’re house hunting at the same time. So, why not let uno do it for you?

How uno’s team shaved $45k off Amy’s loans

Even though our name is uno and our plan is to be Number 1, we work as a team to help our customers.

Search.
Compare.
Settle.
Strut.

Get started

Find out if your home loan is any good

Get your loanScore