What homeowner's insurance covers — and doesn't — when water damage strikes

Key takeaways

• Homeowner’s insurance typically covers water damage that starts inside the home, like burst pipes or leaking appliances, while flooding from external sources — storms, rising rivers or storm surge — requires a separate flood insurance policy. 
• Most policies do not cover foundation problems caused by flooding, soil movement, drought, normal settling or construction defects. Sewer backups may also be excluded unless homeowners purchase a specific add-on. 
• Homes in high-risk flood zones with federally backed mortgages usually must carry flood insurance, which can cover foundations and major systems. Coverage options and costs vary by flood zone and whether insurance is purchased through the National Flood Insurance Program or private insurers. 

Home insurance coverage can be confusing when water damage, flooding or foundation problems occur. The type of coverage you need often depends on where the water came from.

Homeowner’s insurance typically covers water damage that originates inside the home, such as a plumbing failure. Flood insurance, by contrast, is designed to cover water from external sources, including storms, hurricanes and rising rivers. Here’s how the coverage differs.

Homeowner’s insurance usually covers water damage only when it originates indoors, such as from a burst pipe or leaking appliance. Many water problems in basements or crawl spaces, however, are tied to foundation issues.

In most cases, homeowner’s insurance does not cover foundation damage caused by:

• Construction defects
• Normal settling 
• Flooding 
• Drought or soil movement 

Sewage problems can also fall into a gray area. If your home has a septic system, homeowner's insurance may cover related damage. However, damage caused by a municipal sewer backup is typically excluded unless you purchase an add-on policy. Insurance carriers usually charge extra for that coverage.
For newer homes, a builder's home warranty may provide protection against foundational problems, related water damage and structural issues in basements or crawl spaces. Minor cracks in walls or floors are usually excluded. In some cases, however, homeowners may qualify for free foundational repairs under warranty.

Flood damage caused by external sources requires separate coverage. Flood insurance is available through the National Flood Insurance Program or private insurers. Flood insurance policies with building coverage typically protect:

• Home foundations 
• Anchoring systems 
• Furnaces and water heaters 
• Other permanent fixtures 

Foundation coverage is especially important during floods. For example, during a hurricane, each cubic yard of seawater has a hydraulic impact similar to a live oak tree crashing into your foundation.

The federal government may require flood insurance if your home is located in a high-risk flood zone and has a federally guaranteed mortgage. Communities can choose to join the National Flood Insurance Program, or NFIP. If they do, communities follow NFIP guidelines to reduce flood risk in exchange for eligibility in its flood insurance programs. NFIP insurance is often more expensive than private insurance carriers but covers high-risk areas that private insurers won’t.

There are several flood zones that the federal government uses to label flood risks:

• Zone A: High-risk flood areas due to proximity to pond, stream, river or a protective barrier under construction. Flood insurance is mandatory for federally guaranteed mortgages
• Zone V: High-risk coastal areas with an additional hazard from storm waves. Flood insurance is mandatory for federally backed mortgages.
• Zone B & X: Moderate risk of flooding
• Zone C & X: Low risk of flooding
• Zone D: Flood risk undetermined

Consult with your agent or an insurance company to determine what coverage is right for you.This story was updated on May 14.