If your home is located in or near a flood zone, finding the right flood insurance policy may be a necessity in order to protect your home. After all, just one inch of water could cause $25,000 in damages to your home, according to FloodSmart.gov. However, since flood damage is excluded from standard homeowners insurance policies, this would be an out-of-pocket expense without flood insurance.
The Federal Emergency Management Agency (FEMA) estimates that the average cost of flood insurance is $700 per year. However, the cost of your flood insurance policy could vary depending on your home’s location and size, as well as your policy selections. Learning more about flood insurance rates, as well as the policy’s components, could help you understand if flood insurance is right for you.
- Flood insurance costs an average of $700 per year, according to FEMA.
- A new rating program, called Risk Rating 2.0, is coming to FEMA policies in October 2021 and is designed to more accurately rate a building’s flood risk.
- There are ways to lower the cost of your flood insurance, including elevating your property, installing floor drains and increasing your deductible.
Factors that determine flood insurance cost
The average U.S. homeowner pays $700 per year for a flood insurance policy. However, like other forms of insurance, your premium will vary based on your individual rating factors. While the best way to know how much your flood insurance will cost is to get a quote, understanding the factors that determine your premium might help you to control your premium as much as possible.
If you have a mortgage or other type of home loan, your lender will require you to buy a flood insurance policy if your home is in a flood zone. Flood policies are generally required to be paid in full, either by you directly or out of your mortgage’s escrow account.
The first, and perhaps the most significant, factor that determines the cost of flood insurance is the historical risk of flooding in your region. Although you may not think your home is at risk for flood damage unless you are close to a waterway, most places in the U.S. have at least some flood risk. The more likely flooding is in your area, the more your flood insurance is likely to cost. This is because premiums are heavily based on risk. If it is more likely that flood damage will occur, insurance companies charge higher premiums to compensate. To find how much of a risk flooding is in your area, check out FEMA’s flood maps for your region.
Where your home is specifically located within a floodplain also plays a role in the cost of flood coverage. Your home may be located within a floodplain, but your flood insurance could be lower if your house is built on a hill or other elevation. This is because the elevation reduces the risk of flood damage, thus reducing the risk that an insurance company will have to pay out a claim.
Home age and construction
Flood insurance providers also pay close attention to how your home is constructed and how old it is. Older homes built before modern construction materials and techniques may be more vulnerable to damage caused by flooding and could require additional expenses, such as custom lumber milling, to repair. Some modern building techniques may help mitigate flood damage, like including floor openings for water to drain out more quickly.
Type of coverage
There are only two coverage options on a flood insurance policy: building coverage and contents coverage. Choosing a policy with no contents coverage will likely be cheaper than choosing a policy that includes both coverage types but could leave you financially vulnerable if a flood destroys your home and everything in it.
Coverage limit and deductible level
Generally, the more coverage you purchase, the higher your premium will be. This applies to both building coverage and contents coverage. The higher your coverage, the greater the risk to the insurance company, which is taking on greater risk with higher coverage levels. Your deductible, which is the amount of money you will pay out of pocket if you file a claim, also impacts your premium. Typically, the higher your deductible, the lower your premium will be. With a higher deductible, you are agreeing to pay a higher amount out of pocket if you file a claim, thus reducing risk to the insurance provider.
Type of policy
Depending on your home’s location, you may qualify for a National Flood Insurance Program (NFIP) Preferred Risk Policy (PRP). If your home is located in a low-risk flood area, you may be able to purchase valuable flood insurance coverage at a lower price. However, Preferred Risk Policies are not available to all homeowners. Standard policies are often the only option for homes located in high-risk flood areas.
Historically, flood insurance was only offered by the National Flood Insurance Program (NFIP). Although various insurance companies sold NFIP policies, the rates were standardized regardless of what company you purchased coverage from. However, within the last several years, private insurance companies have begun to sell and underwrite their own policies. Now, with more companies selling flood insurance, you can get several flood insurance quotes to compare coverage types and premiums, just like you can with homeowners insurance quotes.
Risk Rating 2.0
Starting in October 2021, FEMA began to roll out a redesigned NFIP rating strategy called Risk Rating 2.0. If you have a current NFIP policy or purchase an NFIP policy in the future, your premium will likely be impacted.
Previously, flood rates were heavily determined by your home’s location within a floodplain and its elevation. Risk Rating 2.0 is designed to more accurately determine rates based on a variety of factors. The new rating system includes factors like flood frequency, the type of flood risk in a given area (storm surge, river overflow, heavy rainfall, etc.), distance to a water source, your home’s rebuilding cost and your property’s elevation. The more varied rating factors are designed to help more accurately rate the risk of flooding at any given location.
Risk Rating 2.0 is designed to help reduce the disparity between flood insurance rates for lower-valued homes and higher-valued homes. The new rating began on October 1, 2021 for new policies. Existing policies will roll into the new rating system at their renewals on or after April 1, 2022.
What does flood insurance cover?
Many people use the word “flood” to describe any kind of water damage, but floods are distinct weather events and flood insurance is designed to cover a particular set of circumstances.
Flood insurance covers damage caused by weather-related floods, including heavy rainfall, storm surges and overflowing bodies of water. Many homeowners will use the term “flood” when discussing other types of water damage, like broken pipes and water backup. If heavy rains cause a sump pump to fail and water backs up into your basement, that is not a flood. Coverage for damage caused by these instances may be covered on your homeowners insurance, depending on the coverage types you have.
According to the National Flood Insurance Program (NFIP), flood insurance covers:
- Plumbing and electrical systems
- Water heaters and furnaces
- Cooking stoves, refrigerators and built-in appliances (like dishwashers)
- Permanently installed carpeting
- Permanently installed bookcases, cabinets and paneling
- Window blinds
- Foundation walls, anchorage systems and staircases
- Detached garages
- Fuel tanks, well water tanks and pumps and solar energy equipment
- Personal belongings such as furniture, electronic equipment and clothing
- Washer and dryer
- Portable and window air conditioners
- Microwave oven
- Carpets not included in building coverage (such as carpet installed over wood floors)
- Valuable items such as furs and original artwork (up to $2,500)
Keep in mind that these coverage details are from the policies offered by NFIP. A private flood insurance company may have different coverage types, including additional coverage options and limits.
How to save money on flood insurance
You can explore several steps to protect your property from flood damage, and these actions could help you pay less for flood insurance each year. Below are some of the top recommendations from the NFIP.
Some of these steps could be relatively expensive and entail major home renovations. Getting quotes for the work and asking how much the changes could reduce your flood insurance premium might help you decide if you will save enough to justify the cost of taking these measures. But keep in mind that these steps don’t just serve to reduce your flood insurance premium — they could save you from the heartache, stress and emotional fallout from flood damage.
Elevate your utilities
Elevating electrical panels, heating and cooling systems, water heaters and other utilities on a platform above the base floor elevation of your home can help reduce the likelihood of damage from a flood and thus save you money on your premium.
Elevate your property
It may seem like a big undertaking, but the NFIP calls this action the fastest way to reduce flood insurance costs. In fact, if you live in a high-risk flood zone, you might save hundreds of dollars every year for each foot that your home is elevated above your community’s base floor elevation. Elevating your home above the level of flood waters means that it is far less likely to flood and reduces the risk that an insurance company will have to pay out a claim. Obtaining an elevation certificate, which plots your home’s specific elevation on your property, could drastically reduce your premium. If choosing this route, an elevation certificate would need to be obtained every year around the renewal date to assess the best possible flood insurance rate.
Maintain or install flood openings
For insurance purposes, the NFIP requires all new home building and basement renovations in high flood-prone areas to have flood openings below the lowest elevated floor of the home — typically on at least two exterior walls. If your home does not have flood openings, adding them could lower your premium. These openings allow water to drain out of your home, potentially reducing the amount of damage that could happen.
Fill in your basement
Being below ground level, basements are at high risk for severe flood damage. Water can rush in and has no way to drain out. Although filling in a basement may seem like a drastic step, it could save you quite a bit of money on your flood insurance. If you are a new homebuyer and looking at homes in flood plains, purchasing one without a basement might be a prudent financial choice.
Increase your deductible
Most flood policy deductibles start around $1,250 and can go up to $10,000 or higher, although this may vary between NFIP policies and private carriers. The higher your deductible, the more money you will have to pay out of pocket if you file a claim. Just like with homeowners insurance, a higher deductible generally leads to lower premiums because you are agreeing to pay more in the event of a claim, thus reducing the risk to the insurance company. Because you will be responsible for paying your deductible if you file a claim, make sure you choose a level that makes financial sense for you.