Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail
Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail

Water Damage Clause

What it is:

A water damage clause is the section of an insurance contract that details whether and how much the insurer will pay the insured for damage caused by water.

How it works (Example):

For example, let's assume that John has a homeowner's insurance policy for the house he lives in. One winter night, a pipe freezes and bursts, spewing water all over the garage and ruining the drywall. John's insurance policy has a water damage clause that covers damage due to burst pipes, so John files a claim and has his insurance company reimburse him for the cost of repairing the garage.

The following spring, a big storm produces six inches of rain in two hours. The ground is saturated and the streets flood. Water seeps into John's basement, ruining all the furniture, carpeting and walls. John's insurance policy has a water damage clause that says it will NOT cover damage due to flooding, so in this instance, the insurance company does not reimburse John for the cost of repairing the damage.

Why it Matters:

The water damage clause is among the most important provisions of an insurance policy. Accordingly, it is important to read your policy and understand the protection you do and don't have when it comes to water damage. You may want to consider purchasing extra coverage if a property is vulnerable to certain types of water damage -- especially flooding.