6 things homebuyers must know about flood insurance

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From beachfront condos to landlocked subdivisions, flood zones are everywhere. In fact, almost 41 million Americans live in flood zones, according to a study published in the journal Environmental Research Letter.

After a record-breaking hurricane season closing out 2020, many people in storm-prone areas are mindful of the destruction flooding can cause.

Last year served as a major wake-up call in disaster preparedness. 2020’s hurricane season saw 13 hurricanes, 6 of which were classified as major hurricanes. The National Flood Insurance Program, or NFIP, was reauthorized by congress until September of 2021.

Map: 2016 flooding episodes by state

Here are five important things homebuyers should know before they buy in a flood zone.

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.

If you don’t have flood insurance and damage to your home is caused by precipitation, then you’ll likely not be covered by your homeowners insurance policy. Most homeowners insurance will cover water damage from a burst pipe, but not heavy rain, rising rivers or a natural disaster.

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

Sellers usually pick up the cost for the EC, which entails a surveyor coming to the property to measure the elevation, says Louise Rocco with Exit Bayshore Realty in Tampa.

2. The NFIP can help with some flood insurance costs, but only if it lasts

The issue of flood insurance stood out in stark relief in July 2018 when the NFIP was set to expire. The federal program enacted in 1968 helps offset insurance costs for homeowners who are required to purchase flood insurance. Congress passed legislation which was signed by the president, in the eleventh hour, for a four-month extension to the NFIP. Since then, the NFIP has gone through numerous short-term reauthorizations.

The coverage can be expensive for people in high-risk zones, especially since insurance costs rose 8 percent this year. Premiums through the National Flood Insurance Policy started rising in April, bringing the average annual amount, including surcharges, to $1,062.

In Fremont, Nebraska, where the ground is pancake-flat, many neighborhoods are susceptible to flooding because of extremely slow stormwater runoff. Jennifer Bixby, president of Don Peterson & Associates in Fremont, says residents depend on the NFIP.

“The federal subsidy program is what helps keep flood insurance rates affordable. In Fremont, our citizens pay $1 million alone in flood insurance premiums. If the flood insurance program went away, those premiums would go up. That would impact people’s quality of life,” says Bixby.

For some, the extra money spent on insurance is not worth it.

“A lot of buyers don’t want to spend the money on extra insurance. I know one woman who was paying $5,000 per year on flood insurance. You have to make sure you can afford it and you’re willing to pay it,” says Bixby.

The NFIP is currently authorized through most of 2021.

3. Flood insurance is often cheaper outside of flood zones

Even if you’re 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.

“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.

NFIP claims by residents who lived outside of those high-risk zones accounted for more than 20 percent of all NFIP claims filed. These folks received one-third of federal disaster assistance for flooding.

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. In fact, 98 percent of U.S. counties have been impacted by a flooding event. Even one of the driest spots in America, Death Valley, has had dangerous flash floods.

Before buying a home in a flood zone, it’s important to understand how much risk you’ll 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 won’t occur.

“If you’re protected by a levy, even if it meets FEMA standards, there’s a 25 percent 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.

Frequently asked questions

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.

Is flood insurance required?

Flood insurance is required in some circumstances. Most commonly, it is required by lenders for mortgage borrowers. When people take out a mortgage to buy a home that is at high risk of flooding, the lending company may require that the borrower take out flood insurance on that home. If you need flood insurance, you can talk to the insurance company that holds your homeowner’s insurance policy. If you are trying to figure out how much flood insurance you might need for your property, consider the Bankrate article, “How Much Flood Insurance Do I Need for a Mortgage?”.

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.

What to do if you don’t have flood insurance?

Flood insurance is often easy to add to existing homeowners insurance policies. To purchase flood insurance, contact your homeowners insurance company and ask them to add flood insurance coverage to your plan. You will have to determine coverage limits and agree to rates and make your first payment. After that, your new policy addition will go into effect. If your insurer doesn’t offer flood insurance, you may have to look at other home insurance companies.