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What is Flood Insurance, and Do I Need it?

Published October 9, 2023
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Help... Do I Need Flood Insurance?

This article has been reviewed by licensed insurance industry expert Moshe Fishman on 10/9/2023.

Unless you live in an area that is prone to flooding, flood insurance is probably something you haven’t thought much about, if at all. However, an increase in natural disasters such as wildfires and hurricanes has put homeowners who don’t live in flood zones at risk. Why? Standard home insurance policies don't cover flood damage.

According to FEMA, the Federal Emergency Management Agency, 30% of all flood damage claims come from homeowners who live in low to moderate-risk flood zones. The fact is that homeowners in all states are at risk of flood-related property damage. This article will help you determine if this type of insurance is something you should consider purchasing to protect your assets.

What this article covers:

  • What flood insurance is and what coverages this type of insurance provides for your property and personal belongings.
  • The difference in coverages between flood insurance and standard homeowners insurance.
  • When flood insurance is required, when it may be needed, and what you should consider when deciding.
  • The various types of flood insurance and what to expect in coverages.
  • Cost of government flood insurance versus private insurance coverage.

What you should know: 

  • Flood insurance is a separate policy and not part of a standard homeowners insurance policy.
  • For the purposes of flood insurance, a flood is the result of a natural disaster.
  • A flood insurance policy is not required unless you live in a high-risk, flood-prone area.
  • In 2020, most homeowners who were a victim of flooding did not live in designated flood areas and did not have flood insurance under their homeowners policy.
  • In addition to the National Flood Insurance Program offered by FEMA, there are now private insurers who offer this type of coverage if you live in a high-risk, flood zone.

What is Flood Insurance?

Flood insurance is a separate insurance policy from your homeowners insurance that provides coverage for your dwelling and personal belongings in the case of flood-related damage. The flood must be the result of a natural disaster. For example, if a pipe bursts in your home and floods the basement, this is water damage, but it wouldn’t be covered under flood insurance. 

Flooding is defined by FEMA as “a general and temporary condition of partial or complete inundation of two or more acres of normally dry land area or two or more properties (at least one of which is the policyholder’s property) from: overflow of inland waters, unusual and rapid accumulation or runoff of surface waters from any source, and mudslides.”

Flood Insurance & Homeowners Insurance: What’s the difference?

Homeowners insurance is a standard insurance policy that provides coverage for the homeowner’s dwelling (the home and surrounding structures such as a garage), personal belongings, and personal liability. Although homeowners insurance isn’t required by state law, most mortgage lenders require that homeowners have a homeowners insurance policy. Homeowners insurance covers the property from “insurance perils” or events that can cause damage to a home or belongings. These perils include things such as a fire, smoke damage, theft, vandalism, burst pipes, and more. 

Flood insurance is a specific policy that covers damage due to flooding. Unlike auto or homeowners insurance, flood insurance is not required unless the home is located in a high-risk flood zone. However, most homeowners who experienced flooding in 2020 didn’t live in flood zones and weren’t covered under their homeowners insurance.  In retrospect, it would have been a good idea for those homeowners to buy flood insurance.

Approximately 14% of homes in the U.S. are in high-risk areas that require flood insurance. For those who live in high-risk flood areas, it’s estimated that there’s a 25% chance of flooding over the course of a 30-year mortgage.

Do I need Flood Insurance?

Homeowners who don’t live in high-risk flood zones have a false sense of security that their home is safe from flooding. However, natural disasters such as wildfires and hurricanes are increasing in intensity and frequency. Also, the typical patterns of hurricanes are changing and expanding. 

According to a 2020 study, storms such as hurricanes are moving farther inland than they did 50 years ago. Flooding has become one of the most common natural disasters in the U.S. with 15 million homes in flood hazard areas, at risk of flooding–70% higher than FEMA estimates. It’s estimated that an inch of flood damage will cost to repair an estimated $20,000.

The FEMA Flood Map Service Center is the official public source for flood hazard information and has provided a website where homeowners can enter their address to determine their risk of flooding. You should consider purchasing flood insurance if any of the following apply:

  • You live in an area affected by wildfires.
  • You live in a new development.
  • You live in an area with moderate-heavy rainfall.
  • You live in an area where the ground may freeze.

Types of Flood Insurance

Until recently, flood insurance was only available from the National Flood Insurance Program (NFIP). However, some private carriers have begun to offer flood insurance. Here’s how they differ:

National Flood Insurance Program (NFIP)

The National Flood Insurance Program is offered through FEMA and provides access to flood insurance that is federally supported. This type of flood insurance offers up to $250k in building coverage and $100k in contents coverage. It is available to homeowners who reside in low, moderate, or high risk locations. You can determine if your home is located in a community that is eligible for NFIP coverage by checking FEMA’s Community Status Book.  NFIP policies take 30 days before they become effective.

NFIP building coverage pays for repairs that are needed to your home including damage to electrical, plumbing, furnaces, pumps, appliances, cabinets, built in bookcases, walls and wallboards, paneling, staircases, and garages. NFIP contents coverage pays for the replacement of items such as personal belongings, electronics, furniture, clothing, rugs, curtains, portable appliances, and artwork.

Private Flood Insurance

Private flood insurance is available through private insurance companies and isn’t supported by the federal government. Because private flood insurance isn’t subject to government regulations, these policies can be more robust than NFIP policies. They might offer more coverage options and higher policy limits than are available through federally underwritten policies. Another advantage is that the waiting time for private flood insurance to become effective might be shorter than the NFIP’s 30-day period.

For homeowners, whose home is valued at more than $250,000, it’s a decided advantage to go with a private insurer. This is because the NFIP’s replacement cost ceiling is $250,000. If your home incurs more than $250,000 worth of damage or cost to rebuild, a private policy will provide the extra coverage you need. 

Also, if a flood renders your home uninhabitable, private flood insurance covers additional living expenses and other incidental expenses that aren’t covered under an NFIP policy. If the time to rebuild or repair your home takes months, this coverage will come in handy and reimburse you for the expense of having to rent another home. 

How much does flood insurance cost?

A National Flood Insurance Program policy costs between $800-$1200 annually in premiums. For people who live in areas that aren’t at high risk for floods, private flood insurance is actually quite affordable. The average annual premium costs about $700 but can be as low as $400 for homeowners in low-moderate flood risk areas. 

Protect your investment with Flood Insurance.

To protect your biggest investment and for peace of mind, it may be worth purchasing flood insurance. You should verify if you live in a flood zone and if you are required to purchase flood insurance. If you do not live in a high-risk flood area, you should still review whether or not it makes sense to purchase a flood insurance policy. 

Depending on where you live, your property may still be susceptible to flooding due to location and the potential for natural disasters, whether or not it is designated as being flood-prone. Protecting your property with flood insurance helps to eliminate the gamble of losing your home due to a flood. 

Check with your homeowners insurance agent or insurance carrier to determine if flood insurance is right for you. 

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