Guide to flood insurance: Here's what to know

The majority of climate scientists agree that climate change is causing more frequent and intense flooding. As floodplains expand, more homes are at risk. While standard homeowners insurance may cover some forms of water damage, most policies specifically exclude flood-related damage. While homeowners in or near moderate to high-risk flood zones may strongly want to consider purchasing flood insurance, owners of homes that are at lower-risk may want to consider it, too. Floods can happen anywhere and the damage is often extremely expensive to repair. Flood insurance policies can be purchased through a private carrier or the National Flood Insurance Program (NFIP). It is crucial for homeowners to understand what flood insurance is, how it works and what options are available so they can protect their investment in their most valuable asset. Bankrate's insurance editorial team, which has a combined 50 years of industry experience and includes licensed agents, has put together this guide to help you make the most informed decision about flood insurance.

What is flood insurance and how does it work?

Flood insurance is typically sold as a standalone insurance policy that covers the structure of your home and personal belongings from flood-related damage. Flooding is defined as an overflow of water onto land that is typically dry, but flood policies do have some limitations. Mudslides, for example, are not typically covered by flood insurance whereas mudflows usually are.

Having flood insurance may be beneficial because flood-related losses are not covered under traditional homeowners, condo owners or renters insurance policies. Flood insurance policies are offered through the National Flood Insurance Program (NFIP) and some private insurance companies. However, a few homeowners insurance companies, such as Kin, offer flood coverage as an endorsement that you can add to your existing home insurance policy.

When you buy flood insurance, your policy does not take effect immediately. There is typically a 30-day waiting period before you can file a claim. However, this period could be waived in a few scenarios, including if you need flood insurance to close on or refinance a home, or if your home has been included in a newly designated flood zone within a certain timeframe.

What does flood insurance cover?

Flood insurance policies from the National Flood Insurance Program (NFIP) come with two types of coverage: dwelling coverage and contents coverage. Here is what’s covered:

• Dwelling coverage: This is the backbone of your flood insurance and is mandatory to purchase a policy — you cannot waive your dwelling coverage. Dwelling coverage provides financial protection from the damage that flooding can cause to the structure of your home, built-in appliances and attached structures. If you get NFIP coverage, the dwelling insurance portion of your policy is capped at $250,000, regardless of the market value of your home.
• Contents coverage: Contents coverage covers your personal belongings, including your clothing, furniture and home decor, up to your policy limits. This is optional coverage and you can purchase NFIP flood policies without personal property coverage. NFIP policies cap contents coverage at $100,000.

Private insurance companies may offer more policy options, higher dwelling and contents limits, and different flood insurance rates compared to the NFIP policies. You may find that you can purchase different coverage or higher coverage limits with a private carrier than you can with the NFIP, which could provide more peace of mind during flooding events. To determine if you need higher flood insurance coverage limits, you might want to consider your dwelling and contents coverage limits from your standard homeowners policy and compare that against the likelihood of catastrophic-level flood damage occurring above the $250,000 and $100,000 limits.

Another benefit of private flood insurance is that policies can often be activated within 10 days or less, versus the 30-day waiting period for NFIP plans. Although you should keep in mind that private carriers may impose a moratorium if there is an impending storm or other major weather event. As with home insurance, getting quotes from a few different private flood insurance carriers can help you find the best flood insurance for your needs at the most affordable price.

What is not covered under flood insurance?

Like home insurance policies, flood insurance policies have exclusions. These may include:

• Damage caused by moisture, mildew or mold that could have been prevented
• Damage caused by earth movement, including landslides
• Damage to outdoor structures, like decks, patios and pools, and landscaping
• Additional living expenses if you are displaced due to flood damage to your home

Because flood insurance is designed to cover damage caused by true floods, your policy might not cover sources of internal water damage, such as failed sump pumps or burst pipes. These types of accidental and sudden water damage might be covered by your home insurance policy, depending on the additional coverage you have. However, keep in mind that these coverage types may require additional riders or endorsements.

Is flood insurance required?

Yes, flood insurance is mandatory for homeowners living in high-risk flood areas with federally-funded homes. Some of the most common government-backed mortgages are FHA, USDA and VA home loans. Lenders for other types of mortgages are also likely to mandate flood coverage if the property is in an area with a history of flooding.

You may be asking “Do I need flood insurance if I don’t have to have it?” Flooding can happen anywhere and the resulting damage is typically very expensive to fix. Even if flood coverage isn't a requirement, homeowners and renters in low to moderate-risk flood areas should speak to their agent about flood coverage. Homeowners insurance, condo insurance and renters insurance policies may offer protection for plumbing-related water damage and water leaks, but they will not cover losses due to naturally occurring floods. This is because flooding is often devastating to an entire region, which can lead to hundreds or more significant claims all at once. 

Is flood insurance worth it?

Although you may think your area is relatively safe from flooding, the Federal Emergency Management Agency (FEMA) reports that 99% of all U.S. counties had experienced a flood event between 1996 and 2019. The average NFIP claim payout for flood damage is $52,000.

Flood insurance is usually only required in specific circumstances, such as getting a mortgage on an ocean-front vacation home. However, flood coverage can be a good investment, even if you aren’t terribly concerned about the risk of flood damage. You might consider flood insurance if:

• Your home is in a flood zone, and you have a government-backed mortgage. Mortgage companies will likely require flood insurance in this case. It is worth noting again that flood insurance premiums are typically due in full upon purchase.
• Your home is in a high-risk flood area. You can check your flood risk using FEMA’s mapping tool. If flooding is common or likely in your area, buying a flood insurance policy could be a good idea. Remember that there is typically a 30-day waiting period, so you probably don’t want to wait until there is a storm that could cause flooding in the forecast.
• Your home is likely to experience a flood event in the near future. According to the latest report from the First Street Foundation, FEMA's risk assessment for flood zones does not account for the increased level of future perception caused by climate change. Therefore, millions of homes not included in the flood zones could experience a severe flood and be without flood insurance. Using online tools such as Flood Factor can help you understand the likelihood of a flood event occurring in your area within the next 30 years.
• You do not have the finances to repair flood damage. Even if you are not in a flood zone, your property could still flood. If you do not have the finances to repair your home or replace your belongings after a flood, you might want to consider a flood insurance policy.

Types of flood insurance

Previously, the only way to purchase flood insurance was from the NFIP. However, in the last several years, some private carriers have started to offer flood insurance.

When it comes to private flood insurance vs. NFIP coverage, understanding the differences between the programs could help you determine the best flood insurance companies to request quotes from.

National Flood Insurance Program (NFIP)

The National Flood Insurance Program gives homeowners access to federally supported flood insurance. NFIP insurance is available to any homeowner, regardless of flood risk, and offers up to $250,000 in building coverage and $100,000 in contents coverage.

If you own a business, you can purchase an NFIP commercial policy with up to $500,000 in building coverage and up to $500,000 for contents. For both residential and commercial flood policies, these coverage types generally have separate deductibles and may need to be purchased separately.

Flood policies may be issued directly by the NFIP or by various insurance companies through an NFIP program called write your own (WYO) policy. With the WYO program, the insurance company issues and services the policy. However, the NFIP is responsible for paying any approved claims related to the policy.

Private flood insurance

Private flood insurance also covers the structure of your home and its contents from flood damage, except it receives no support from the federal government. Instead, private flood insurers are companies that either rely on a reinsurer or money collected from premiums to cover losses.

Private flood insurance policies can be more robust than NFIP policies, and you might have access to more coverage options and higher policy limits than you do with federally underwritten policies. Additionally, waiting times for private flood insurance might be shorter than the 30-day period NFIP requires.

How much does flood insurance cost?

The average annual cost of flood insurance through the NFIP was $700 in 2019. However, in October 2021, FEMA began using its Risk Rating 2.0 program, which takes various factors into account when determining premiums. As of April of 2023, all flood policies have been renewed into the new rating system. The program is designed to close the price gap between lower-value and higher-value homes and more accurately rate an individual property’s risk of flood damage. Currently, single family homeowners pay on average $888 per year for flood insurance through NFIP. Based on the new rating program, the full risk-based cost average is $1,808. Flood premiums are on a glide path and will increase each year until it aligns with the risk-based cost.

If you opt for coverage through a private insurer, rates will vary by company. In addition, the price for your flood insurance will depend on several factors, including:

• Flood zone and flood risk
• Home age and construction
• Coverage limits
• Deductible level

In many cases, you are required to pay your flood insurance premium upfront and in full each year. However, if you add a flood insurance endorsement to your existing home insurance policy, the premium will likely be added to your home insurance premium, which you can pay on a monthly basis.

How to lower the cost of flood insurance

While flood insurance can be expensive — often more expensive than the cost of your home insurance policy — the Risk Rating 2.0 system is expected to lower the cost of flood insurance for some NFIP policyholders. You may also be eligible for a discount if your community participates in the FEMA Community Rating System (CRS). This means that your community has created flood management programs beyond the NFIP requirements.

There are other steps that may help lower your premium, whether you obtain a policy from the NFIP or a private carrier. It may be possible to lower your premium by:

• Adjusting your policy limits and deductible
• Providing an annual elevation certificate
• Retrofitting your home to minimize damage in the event of a claim

Additionally, requesting a quote for flood insurance coverage from more than one carrier or adjusting the policy limits could help you find a flood insurance policy that falls within your budget.

Frequently asked questions