July 11, 2017

Flooding Insurance in Canada: Everything You Need to Know

Water damage and flood insurance is a somewhat misunderstood part of home insurance, and unfortunately, wrong decisions here can be very costly. In today’s post, we will break down the complex details of water damage insurance.

Water damage is split into three different types:

1. Internal plumbing issues: burst pipes, clogged drains, etc.
2. Sewer backup: when the sewer water backs up from your toilet, causing severe damage.
3. Overland flooding: when water enters your home due to the raised level of a nearby water source, like a river or excess melted snow.

Different Policies for Different Risks

These three risks are handled differently by home insurance policies. As a rule, internal plumbing issues are included in basic insurance coverage, but it’s important to know what your coverage limits are because internal flooding makes for costly repairs.

According to InsurEye, an online insurance consumer review platform that also offers home insurance in BC and across other provinces, the real danger comes from the other two risks: sewer backup and overland flooding.

Recently, many homeowners in Canada faced flooding issues due to changing climate conditions and heavy rain seasons.

Cause of Flood Counts

Let’s break down and compare these two types of risks and their associated coverage so that you can make informed decisions when getting home insurance quotes in Ontario, Alberta or Quebec – the provinces that currently face high risks of flooding:

	Sewer Backup	Overland flooding
Risk description	If a municipal water storage facility cannot hold any more water, it pushes it back into the pipes, forcing it to exit in peoples’ homes. That’s where it gets dirty…	Water enters your dwelling from the outside due to natural conditions, such as rising river/lake levels from heavy rain or melting snow in the spring.
Origin of the issue	Inside the house	Outside the house
Is coverage typically included in the basic package?	Usually not	Usually not
Is it optional?	Yes, from most insurers	Yes, from some insurers
How long has it been on the market?	Decades	Just a couple years
Typical limits	Some providers: $100K – $200K Recommended: over $200K	Can vary
Percentage of household that do not have it, even though they should	~50% – Approximately one half of Canadian homeowners who might need this coverage do not have it.	~90% – Most homeowners are vulnerable as they are usually not aware that they are not covered for overland flooding.
Insurance approach	Optional coverage that almost always can be purchased for a small additional fee.	When offering home insurance quotes, the insurer will rate your location and, depending on its risk level: low, medium or high, will either offer you coverage for a low fee (low risk neighbourhood), or somewhat higher fee (medium risk neighbourhood), or can even refuse to sell this coverage (high-risk neighbourhood).
How can you purchase it?	As a sewer backup rider or sewer backup endorsement.	Various insurers treat this product differently:   Some offer it separately as an optional overland flooding rider or endorsement.   Others will sell it to you only if you bundle it with a sewer backup coverage in one package, which is usually called a water damage endorsement, or sewer backup and overland water endorsement.
How do insurers handle deductibles for these optional insurance coverages?	Most insurers will handle it similarly to the rest of the policy. For example, if you have a $1,000 deductible on your home insurance policy, it will be the same for sewer backup coverage (but make sure you confirm this with your insurer).	Some insurers will handle it similarly to the rest of your insurance policy.   Other insurers might set up a higher deductible for overland flooding (e.g. $10,000 or even $20,000). It means first you pay this amount, and only afterwards insurance kicks in.
Companies to consider	According to our home insurance partners’ opinions, Economical Insurance and Intact have a combined sewer backup and overland water product with a variety of coverage limits and deductibles. Also, prices for high-risk areas are quite competitive.   RSA and Aviva also have a water damage package, but deductibles are somewhat higher.
Companies to be cautious about	TD Insurance and State Farm offer capped protection (limited coverage) at $100K and $200K respectively. It might be not enough, especially if your fully finished and equipped basement has been flooded.

 

Our advice is to make sure you are aware of your flooding risk when purchasing your new home. The municipal government offers flood zone area maps that you can use to determine the flooding risk for your prospective property.

Once you have purchased your home, our recommendation is to get a combined sewer backup and overland flooding rider or endorsement on top of your home insurance policy.

Another good idea is to add a backup valve in your piping to ensure that your home is physically protected from sewer backup surprises.

We hope that these insights help to keep your home protected and, hopefully, dry.