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What is flood insurance?
Flood insurance is a product that covers property loss caused by flooding. The most common way to get flood insurance is by going through the National Flood Insurance Program (NFIP), which is regulated by the Federal Emergency Management Agency. FEMA partners with many different insurance companies to sell and manage policies.
Property owners are eligible for NFIP coverage if their property is located in one of the program’s participating communities. Standard homeowner insurance doesn’t cover flood damage to properties or belongings; homeowners need separate flood insurance if they want financial protection against catastrophes like storm surges, hurricanes and overflowing rivers. If the property is located in a high-risk area, called a Special Flood Hazard Area, and is under a mortgage, owners are likely required to get flood insurance.
Flood insurance policies are available for homes and commercial properties. The standard flood insurance policy covers direct physical damage to the home’s structure, including the foundation, plumbing and electrical systems. It also covers damaged belongings, such as electronics, appliances, clothing and furniture. Homeowners can buy up to $250,000 in coverage for their house and up to $100,000 for their belongings. Renters can buy flood insurance, too.
If they need to go beyond these limits, they should consider buying excess flood insurance, which allows them to increase their coverage to fully insure their home and belongings when a federal policy is not enough.
Flood insurance also includes deductibles for both home and personal property coverage. Choosing lower deductibles will increase rates, but policies will stretch further.
To be considered a flood, the water that causes destruction must cover at least 2 acres or cause damage to at least one other property.
Flood insurance example
FEMA does not provide flood insurance directly. It works with private insurance companies that offer coverage to their clients. The federal government sets rates that are consistent among companies. The average cost for a flood insurance policy through the NFIP is $672, but premiums vary widely, depending on the property’s risk level, flood-zone classification and the insured’s coverage options.
After buying flood insurance, there’s usually a 30-day waiting period before it goes into effect. However, there are some exceptions to the NFIP waiting period. For instance, the waiting period is waived if a homeowner gets flood insurance in connection with a new mortgage.
According to FEMA, almost 25 percent of all NFIP claims come from moderate- or low-risk flood areas.
Use our mortgage refinance calculator to help you figure out whether a refi is a good option for you.