6 Things home buyers must know about flood insurance

Flooding can happen just about anywhere in the U.S., and it can happen both in flood-prone areas and areas that are not in flood zones. According to FEMA, floods are the most common and most costly natural disaster in the U.S., with 98% of the counties in the country having experienced a flood at some point. The agency has processed more than 2.5 million claims since the National Flood Insurance Program’s (NFIP) inception, and has paid out $72.4 billion in claims since 1978.

With more instances of extreme weather recently due to climate change, flooding may soon become even more common across the nation. That’s why homeowners need to be aware of the risks that come with flooding and plan their insurance needs accordingly. Flood insurance is a crucial part of protecting your home from flood damage, but it’s not part of a standard homeowners insurance policy. It’s a separate coverage type that is quite different from your typical homeowners insurance policy. Here are a few important things you need to know about when it comes to flood insurance.

1. You might be required to get flood insurance

Those who live in high-risk flood zones, designated with the letters A or V on a flood insurance rate map or FIRM, are usually required by their mortgage lenders to purchase flood insurance. Flood coverage is separate from standard homeowners insurance.

Most homeowners insurance will cover water damage from a burst pipe, but not heavy rain, rising rivers or flooding due to a natural disaster.

Homes located in high-risk zones usually require an elevation certificate, or EC. The EC shows what your home’s elevation is in relation to how high flood waters will reach in the event of a major storm. This gives insurance companies an idea of how much risk is involved, which may impact your premium.

Sellers usually pick up the cost for the EC, which entails a surveyor coming to the property to measure the elevation, according to Louise Rocco with Exit Bayshore Realty in Tampa. However, if the seller previously had an EC completed, this may be sufficient.

2. NFIP insurance can protect you from flood losses

The National Flood Insurance Program (NFIP) was enacted in 1968 to provide flood insurance to property owners, renters and businesses. It’s administered by FEMA and offers flood insurance to those in communities that have adopted and enforced a floodplain management ordinance—which includes more than 23,000 participating regions. This type of flood insurance can be expensive, but in many high risk areas, NFIP plans may be the only option for purchasing flood insurance.

If you are unable to purchase flood insurance through regular channels, it may be worth talking to your insurance company to find out if they sell NFIP policies. It’s important to note, though, that there is a 30-day waiting period after you purchase a policy before coverage is available, so it’s best not to wait to purchase your policy until a storm is on the horizon. In most cases, you will pay your flood insurance premium with one annual payment, rather than monthly.

3. Flood insurance is often cheaper outside of flood zones

Even if you are not required to get flood insurance by your lender, you still might want to consider it. For homes that are near high-risk areas, insurance could be a lifesaver. The NFIP estimates that 40% of claims originate from outside of high-risk flood zones and are typically due to issues such as recent construction, fires or a breached dam.

“Flood insurance is a bargain when you consider the potential loss. One foot of water in an average home can cause $72,000 worth of damage,” says Chris Orrock, public information officer with the California Department of Water Resources.

Pro Tip: Don’t wait for an approaching storm to get insurance. Most flood insurance policies have a 30-day waiting period before coverage is activated.

For people not in high-risk flood zones, the cost of insurance is likely to be more affordable.
The NFIP’s Preferred Risk Policy program offers low-cost policies for homes that have a low to moderate flood risk. These are designated by B, C or X zones on a FIRM.

“For example, $250,000 worth of coverage, on a house with a basement, costs $386 per year. For a little more than a dollar a day, this could be the best investment you make all year,” says Orrock.

Flood insurance rates are based on several factors, according to the NFIP, including:

• Year of building construction
• Building occupancy
• Number of floors
• Location of its contents
• Flood zone type
• Location of the lowest floor in relation to the base flood elevation on FEMA flood map
• Deductible and amount of building and contents coverage

4. Research local flood history before buying

Experts agree that if it rains, it can flood. Even one of the driest spots in America, Death Valley, has had dangerous flash floods.

Before buying a home in a flood zone, it is important to understand how much risk you will be assuming.

“One of the reasons people buy in Florida is because they want waterfront property and that waterfront property is always going to be in a flood zone. And even things that they say aren’t in a flood zone still could be. The best course of action is to research the property yourself and ask lots of questions,” says Rocco.

Flood zone information is usually in the MLS listing. Issues like drainage or flooding problems must be disclosed.

“Sellers are obligated to disclose information related to flooding, such as whether or not the property flooded before,” says Bixby.

People who are in the highest-risk areas will pay more for insurance, so this is something to consider when you’re house hunting. Buyers should talk to their lenders about any contingencies associated with buying in a flood zone.

“Some lenders might require you to pay a year’s worth of flood insurance upfront,” says Rocco.

5. Flood zone risk levels are not guarantees

Low-risk zones are X and C. Sometimes X zones will be shaded, which indicates that a barrier, like a levy or dam, has been built to reduce the flood risk. Of course, these structures are not a guarantee that flooding will not occur.

“If you’re protected by a levy, even if it meets FEMA standards, there’s a 25% chance during the life of your mortgage, about 30 years, that it will fail,” says Orrock.

A and V = High risk

D = Undetermined risk

B and X (shaded) = Moderate flood hazard

C and X (unshaded) = Minimal flood hazard

6. Learn what it takes to flood-proof your home

If you fall in love with a property, but want to mitigate flood hazards, you can always make changes that will help reduce flood damage. These modifications can be major structural changes or small tweaks, from putting the structure on stilts to adding concrete blocks under your water heater.

Talk to your agent about negotiating the costs of these flood-mitigating updates with the seller.

“You can elevate the building to make sure water isn’t coming in. You can even raise it so that the lowest floor is above flood level,” says Nick Ratliff, associate broker with Better Homes and Gardens Real Estate Cypress in Lexington, Kentucky. “These are things you can talk to your agent about if you’re in a flood zone.”

Depending on your prospective home’s level of risk, small changes can make a big difference. A rule of thumb is to make sure water is flowing away from the home, not gathering in pools.

For example, make sure downspouts are facing away from the structure. Gutter runoff should not collect near the house, which could eventually cause leaks in your basement. If you see this, address it with your agent or the seller.

“Check the pipes and gutters. Make sure they’re clean. Place air conditioner units on concrete blocks, above flood level. This will help protect your home and appliances,” says Rocco.

You may also be able to get help from your NFIP policy to help protect your home from floods. If a storm is expected, NFIP policies may pay up to $1,000 for “reasonable expenses,” such as water pumps, plastic sheeting, lumber and sandbags.

Frequently asked questions

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    What is a flood zone?

    Flood zones are a way of categorizing areas by the relative risk of flooding. Numerous factors, including terrain, waterways and local rainfall, among other factors, play into a given location’s flooding risk. This ranking system comes from FEMA and is based on how likely any given area will be flooded in a given year. Sites with a 1% or higher are deemed Special Flood Hazard Areas, known as SFHAs. It is not uncommon for higher flood risk areas to be both more likely to require flood insurance and to have more expensive rates for flood insurance. In places where flood damage insurance claims are more common, flood insurance tends to cost more. It’s always wise to know whether or not you’re buying a home within a flood zone.
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    Is flood insurance required?

    Flood insurance may be required in certain circumstances. For example, if you used a mortgage to purchase a home in a FEMA-designated flood zone, your lender will almost certainly require you to have a flood insurance policy in place to protect their investment in your home. If you don’t live in a flood zone, flood insurance may be optional. If you are trying to figure out how much flood insurance you might need for your property, it may be helpful to speak to your lender to find out their requirements. Your insurance agent may also be a good resource.
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    Is flood insurance worth it?

    Knowing whether flood insurance is the right move for you can be tricky. In places of frequent flooding, the answer is more likely to be yes, but each property is different. Many structures require flood insurance when mortgages are involved. The best way to answer this question is to learn the risk level of flooding to your property, compare that to the upper limit of damage that flooding might cause, and then consider how much it would cost to purchase enough flood insurance to cover that. If the protection offered is worth as much or more as the cost of the insurance, then it may be a good idea.
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    Does my homeowners insurance policy include flood insurance?

    A standard home insurance policy does not include flood insurance. Some insurers offer it as an optional coverage but it is always sold through the National Flood Insurance Program. You can contact the NFIP to learn more about insurance companies licensed to sell flood insurance policies. Alternatively, some private companies offer flood insurance policies as well.