Guide to flood insurance: here’s what to know
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If your home is located in or near a flood zone, you may be concerned with taking the right steps to manage the risk of flooding and protect your investment. For many homeowners, those steps include looking for the right flood insurance to protect their homes. This type of coverage is designed to cover damage that results from externally-caused flooding — flooding due to heavy rains, snowstorms, melting ice and snow, overflowing storm drains or levees, etc. — but it’s not part of a standard home policy.
Luckily, while flood damage is excluded from a standard home insurance policy, it is still possible to have coverage with a separate flood insurance policy or as an endorsement to your standard home policy. These types of policies can generally be purchased through a private carrier or the National Flood Insurance Program (NFIP). That said, there are some unique features and caveats to know about flood insurance policies, and it’s important to ensure that your flood policy suits your specific needs. To do that, you must also understand what exactly a flood insurance policy covers and how it works.
- Floods are the most common natural disaster in the U.S., and just one inch of water can cause $25,000 in damage to your home.
- A standard homeowners insurance policy does not cover damage caused by flooding.
- Flood insurance may be required if you have a government-backed mortgage and live in a flood zone.
- You typically have to pay a flood insurance policy premium in full when purchasing.
What is flood insurance and how does it work?
Flood insurance is typically a standalone insurance policy that covers 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. 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.
There is typically a 30-day waiting period that applies to flood insurance policies. However, this period could be waived in a few scenarios, including if you need flood insurance to close on or refinance a home and 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 come with two coverage types: dwelling coverage and contents coverage.
- 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 and is capped at $250,000.
- Contents coverage: Contents coverage covers your 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. Most private policies can also be activated within 10 days or less versus the 30-day waiting period for NFIP plans. As with home insurance, getting quotes from a few different private flood carriers might help you find the best flood insurance for your needs at the best 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
- Damage to outdoor belongings like decks, patios and pools, and landscaping
If you are displaced due to the damage to your home, your flood insurance policy may not include additional living expenses coverage.
Flood insurance is designed to cover damage caused by true floods. Flooding is typically defined as accumulating water on normally dry ground. Water damage caused by internal sources in a home — like failed sump pumps causing water to back up in a basement or a burst pipe causing water damage to a wall or floor — are not covered by flood insurance, but might be covered by your home insurance policy, depending on the additional coverage you have.
I have homeowners insurance. Is that enough?
Homeowners 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 can be devastating to a region. Many private insurance companies are not structured to withstand the financial stress 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.
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.
Do you need flood insurance? The answer will depend on each homeowner. You might need 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. Private flood insurance isn’t constrained by government regulations and might offer more coverage options or higher limits than an NFIP policy. You may be able to get private flood insurance quotes by reaching out to local insurance agents to discuss what options are available. Getting quotes from a few private insurers and the NFIP might help you decide which option is right for you.
National Flood Insurance Program (NFIP)
The National Flood Insurance Program gives homeowners access to federally supported flood insurance. NFIP insurance is available to anyone regardless of flood risk and offers up to $250,000 in building coverage and $100,000 in contents coverage. Commercial properties can obtain up to $500,000 in building coverage and up to $500,000 for contents. 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. You can purchase flood insurance through the companies that take part in the WYO program or via the private market. This type of coverage can be added to a homeowners policy by endorsement or provided as a standalone 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. So instead of the federal government underwriting your flood insurance policy, it will be underwritten by an independent company.
Private flood insurance 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
Flood insurance policies typically carry a paid-in-full requirement, so you should be prepared to pay your entire annual premium when you purchase the policy and when you renew.
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 or 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.