What does homeowners insurance cover?

What we may think is covered by our homeowners insurance policy, may not necessarily be true. Katrina may not be a threat to your landlocked home, but flooding may still be a consequence. But it more than likely is not covered in your policy. What is generally covered is damage to your home and property from fire, the elements like wind, rain and hail, and theft of your valuables up to your policy's limit. Most insurance companies require a separate flood insurance policy to cover any water damage. A rule of thumb is water from above - covered...water from below — not covered.

You will have to purchase special flood insurance to pay for the repair and replacement of your home and the stuff in it from water even if caused by extreme rainfall...think storm surge, mudslides, melting snow and even an overflowing dam or in the case of New Orleans, broken levees. It is pretty expensive, because if you live in an area prone to flooding, then it is most likely going to happen again and again, requiring repetitive claims to the insurance companies. In fact some insurance companies will drop "high risk" homes from their roster once a claim or two has been made. The federal government has underwritten some of these policies lowering costs for flood prone areas with the National Flood Insurance Program.

Basic flood insurance is going to include your home itself with maximums in place. You can also purchase coverage for the contents of your home up to $100,000 but know there are limitations on stuff in the basement such as rugs and wallboard as well as furnishings. If you live in a flood prone area, leave the basement for storing non-essentials. And know that "flood" can't be just confined to your backyard...it has to cover two or more acres of land that is dry most of the time.

So if you live in an area where there may be flooding, make sure you have that extra flood insurance policy to protect your investment.

And while we are talking flood, its sister natural disaster, earthquake may be an issue in your area. If you are living on or near a fault line, there is earthquake insurance available either through a private insurance company or if you live in California, through their Earthquake Authority.