Homeowners are well advised to review their homeowners’ policy before they buy it and again periodically once, they live in their home.
What is generally covered by the homeowners insurance 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. Although a storm like Katrina may not be a threat to your landlocked home, flooding may still be a consequence in outlying areas.
If you are affected by flooding and do not own flood insurance, you will have to pay for the repair and replacement of your home and water damage, 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.
Flood insurance is expensive, because if you live in an area prone to flooding, it is most likely going to happen repeatedly, requiring renewed claims to the insurance companies. Some insurance companies will drop "high risk" homes from their roster once a claim or two have 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 typically includes your home with maximum coverage in place. You can also purchase coverage for the contents of your home up to $100,000 but there are limitations on items in a basement, such as rugs and wallboard as well as furnishings. If you live in a flood prone area, use the basement for storing non-essentials only. In addition, be aware that "flood" cannot be just confined to your backyard - it has to cover two or more acres of land that is dry most of the time.
Another natural disaster not necessarily covered by the standard homeowner’s insurance is earthquakes. If you live on or near a fault line, there is earthquake insurance available either through private insurance companies or, in California, through the state’s Earthquake Authority.