Guide to flood insurance: Here's what to know

A standard homeowner’s insurance policy does not include coverage for floods. Even if your home is not located in a moderate to high risk flood zone, you may want to consider purchasing flood insurance, as floods can happen anywhere at any time. Flood insurance policies can be purchased through a private carrier or the National Flood Insurance Program (NFIP), and generally cover flood damage caused by heavy rains, snow storms, melting ice or snow, or even overflowing storm drains or levees. So do you need flood insurance? If so, how much? Bankrate’s insurance editorial team, which has a combined 50 years of industry experience and includes three licensed agents, put together this guide to help you better understand flood insurance coverage so you can make an informed decision about whether it’s right for you.

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 exclusions. Mudslides, for example, are not typically covered by flood insurance.

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 mudslides
• 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?

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. 

Many private insurance companies are not structured to withstand the financial responsibility of paying out claims in such large amounts. To ensure the ability to pay flood damage claims, insurance companies would have to increase home insurance premiums significantly. Instead, flood insurance coverage needs to be purchased separately.

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.
• 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. 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.

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