Understanding flood insurance in Canada
August 31, 2017
We moved into our newly-built home in 2001 and fortunately we have never experienced flooding. But some of our neighbours have and I still get really nervous when we periods of torrential rain or spring freezes and thaws.
In particular, I worry about whether or not in these circumstances our home insurance would cover necessary repairs. That’s why when the article Home Insurance and Flooding in Canada: Finally Explained from InsureEYE appeared in my inbox, I was pleased when company co-founder Alexey Saltykov gave me permission to share the information* with savewithspp.com readers.
According to insurEYE, there are actually four different types of flooding from the perspective of insurance companies in Canada and each of them is treated differently. They can all be protected via a home insurance policy (sometimes with additional endorsements).
Flood Insurance Topic #1: Overland flooding
- Originates outside of your home.
- Often enters your house through the basement/ windows/doors/walls and house foundation.
- Often has natural causes e.g. rising river level, heavy rains, melting snow.
- High to very high degree of damage.
Insurance perspective: Until recently, home insurance in Canada has not covered this risk. Then, during the last two to three years, Canadian home insurers developed overland flooding coverage that is typically sold separately and added on top of your standard home insurance policy.
Insurance companies will typically assess the risk associated with your property and decide if you fall into one of the following categories:
- Low risk: You will be able to get overland flooding protection (also called an overland flooding endorsement) for a low price and it will have extensive coverage.
- Medium risk: An insurer will offer you overland flooding coverage, but the limits might be lower than in the previous case and this coverage will be more expensive.
- High risk: You might have challenges getting this coverage due to the history of flooding in your neighbourhood, or your case will be treated as a high-risk home insurance case (i.e. meaning much higher premiums). High River in Alberta is an example of such a location.
Chances that insurer will pay your claim: With an overland flooding endorsement – very high; without it – very low.
What could you do up front to avoid potential issues?
- Home location: Before buying a property, try to understand if it is located in a flood-endangered location. Typically, local flooding maps will help you understand this In addition, a good real estate lawyer who works on your closing formalities should inform you if your property is in a flood-endangered zone.
- Overland flooding endorsement: In general, if you have a house that has a basement (the part of the house that is most likely to be flooded during overland flooding), consider getting an overland flooding endorsement after understanding its cost.
- Bundles: For customers’ simplicity, some insurers bundle sewer backup and overland flooding insurance riders, offering a combined product with a range of limits and deductibles. Examples of such companies include Intact Insurance and Economical Insurance.
Flood Insurance Topic #2: Sewer Backup
- Originates inside your home.
- Often enters your dwelling through a toilet/sewage system.
- The major cause is an overflow in municipal water storage pushing sewer water back into your house.
- High to very high degree of damage.
Insurance perspective: Insurance companies treat sewer backup as a separate risk and often cover it through a separate, optional endorsement, also called a sewer backup endorsement. This insurance coverage has been on the market for a long time; therefore, significantly more policy holders know about it – somewhere around 50%. This coverage is typically not that expensive, and it adds just a few additional dollars per month to your home insurance policy.
Chances that your insurer will pay your claim: With a sewer backup endorsement – very high; without it – very low.
What can you do up front to avoid potential issues?
- Sewer backup valve: Getting a sewer backup valve (also called a backwater valve) is not too complicated. If it is integrated into your plumbing system, it will help to keep the house protected against unpleasant sewer backup surprises. These devices cost under $250 and are a cost-efficient way to prevent sewer backup accidents. Depending on the age and construction, your home may require either a backwater valve on the main sewage line (typically for homes built before the 70s) or both on the main sewage and storm line (newer homes). Check with your plumber or with municipal services.
- Water damage/sewer backup endorsement: As mentioned earlier, this type of coverage does not cost a lot, but it can prevent significant financial loss. Cleaning and restoration costs can add up to $50,000 – $100,000 and, together with damaged content upgrades (especially in the case of finished basements), can reach $250,000 – $500,000 for larger homes.
- Coverage limits: Carefully understand coverage limits for sewer backup – these can either be defined separately, or can be equal to the full policy coverage. Be careful when insuring with insurers that cap their coverage (e.g. TD Insurance, State Farm).
Flood Insurance Topic #3: Plumbing issues
- Originates inside your home
- Can be caused by burst pipes, broken faucets, malfunctioning taps, incorrectly sealed pipes
- Medium to high degree of damage
Insurance perspective: From the insurance perspective, this is one of the easiest flooding situations to deal with. The flood originates within your house and, in most cases, is covered by your standard home insurance policy without the purchase of an additional rider.
Chances that an insurer will pay your claim: High
Unless there are special circumstances, the insurance company will typically pay this claim (after subtraction of your deductibles, which are mentioned in the insurance policy).
What can you do upfront to avoid potential issues?
- Modern plumbing: Make sure your home uses copper or plastic pipes as opposed to lead or galvanized plumbing. That will also be rewarded with lower insurance premiums.
- Switch off water: Turn off water if you are leaving for several weeks (like on a long vacation or a business trip), and make sure that somebody visits your place regularly. It is important to know that some insurers may even reject your claim if something happens during your long absence and nobody was regularly visiting your home. Some policies may even require that these visits take place as often as every 4th or 5th day.
- Insulation for interior pipes in winter: Your interior pipes may cause problems while you are away – make sure they are well insulated in the winter to prevent pipe bursts due to ice buildup.
- Keep external pipes dry in the winter: Your external pipes should be dry in order to prevent any ice build-up; otherwise, that can also lead to a burst pipe.
Flood Insurance Topic #4: Flooding Due to a Leaking Roof
This type of flooding normally happens when water enters your home through a damaged roof and starts damaging your dwelling, starting from the top floor.
- Originates on your roof starting from the top floor/attic
- Reasons can vary from lacking roof maintenance and natural wear-and-tear to roof damage due to falling trees or ice
- Low to medium degree of damage
Insurance perspective: Insurance companies know that, often, flooding via a leaking roof is a consequence of poor maintenance or an old roof. If you have a leaking roof, make sure that it does not fall into the category of insufficient maintenance. However, if your roof has been badly damaged due to hail, a falling tree, ice, etc., you have a good chance to get your insurance claim paid.
But if you live in a condo and have a leaking roof that has resulted in some damage within your unit (e.g. when you live on the top floors), it is important to understand that your own condo insurance covers only content damage within your unit. The roof itself is covered by commercial condo insurance that your condo corporation owns.
Chances that the insurer will pay your claim: Medium – if an insurer decides that it is a lack of maintenance that led to the leakage, you are on the hook for all the costs.
What could you have done upfront to avoid potential issues? Make sure that you maintain your roof in a good condition. Fixing or upgrading your roof prior to getting home insurance may result in insurance savings. Insurers like properties with upgraded elements (e.g. roof, plumbing, etc.) as opposed to older, not upgraded properties.
In addition to the above, when purchasing water damage and flood insurance:
Pay attention to deductibles: Make sure that you understand what your deductible for flooding-related accidents is. Some providers have very high deductibles ($10,000 or even $30,000 and higher) while others do not. In the first case, you might be on the hook for tens of thousands of dollars before your insurer even jumps in.
Know and document your expenses: Should you face an extensive water-related incident in your place and submit a home insurance claim, there will be a question of a claim payout. It is not in the interest of an insurance company to overpay for insurance claims – these are purely expenses for insurers. Thus, make sure that you have confirmation for all major spending associated with your home.
Last Resort: Government Flooding Programs
In addition to the home insurance, there is another potential safety net that you could use in some cases. It by no means it substitutes your home insurance, but it is important to know this source of help.
Below you will find an overview of provincial disaster financial assistance programs for Canadians.
Alberta, Emergency Management Agency
British Columbia, Disaster Financial Assistance
Manitoba, Disaster Financial Assistance
New Brunswick, Disaster Financial Assistance
Newfoundland and Labrador, Disaster Financial Assistance Program
Nunavut, Emergency Management
Nova Scotia, Flood Assistance
Prince Edward Island (PEI), Emergency Measures Organization
Northwest Territories, Disaster Financial Assistance
Ontario, Disaster Recovery Assistance
Quebec, Financial Assistance for Disaster Victims
Saskatchewan, Provincial Disaster Assistance Program
Yukon, Emergency Measures Organization
|Written by Sheryl Smolkin|
|Sheryl Smolkin LLB., LLM is a retired pension lawyer and President of Sheryl Smolkin & Associates Ltd. For over a decade, she has enjoyed a successful encore career as a freelance writer specializing in retirement, employee benefits and workplace issues. Sheryl and her husband Joel are empty-nesters, residing in Toronto with their cockapoo Rufus.|