What Is Flood Insurance And Do I Need It?

What’s worse than going through a natural disaster? How about learning that your losses, including the loss of your home, are not covered by your homeowner’s insurance policy?

It’s important to make sure you buy all the coverage you need to keep your property and belongings safe. Homeowners insurance is a great start, but ask yourself if you need flood insurance, too.

What Is Flood Insurance?

Flood insurance is available to homeowners living in areas at risk for floods. It is a standalone insurance policy (separate from your homeowners insurance policy) that provides comprehensive coverage for losses caused by flooding. A flood insurance policy covers any damage related to flooding, regardless of the cause.

Floods are one of the most common natural disasters in the U.S. There’s a 26% chance that you’ll experience a flood at some point during a 30-year mortgage, according to the Federal Emergency Management Agency (FEMA). Unfortunately, most of these damages aren’t fully or even partially covered under most regular homeowners insurance policies.

Your homeowners insurance policy includes hazard insurance, which may cover some structural damage from flooding events if they were caused by a specified covered hazard. Notice the “may” and “if” in that last sentence. For example, if a water main breaks during an ice storm and causes flooding, you are covered for structural damage to your home but probably not damage to your personal property. On the other hand, if a hurricane causes flooding, your homeowners insurance offers no protection.

Is Flood Insurance Required?

Your mortgage lender may require you to buy flood insurance, especially if you’re buying a house in a flood zone. Federal law requires anyone who buys a home with government-issued or government-backed financing in a high-risk flood area to purchase flood insurance.

What happens if your property is in a moderate- to low-risk area instead? You’re not required by federal law to buy flood insurance – but your lender can still require you to buy it. Or you may decide you’re not interested in taking a chance with floods, given the extreme weather of recent years. For these homeowners, Preferred Risk Policies (PRPs) are Standard Flood Insurance Policies (SFIPs) offered through NFIP to homeowners in moderate- to low-risk areas at a lower cost.

Do I Need Flood Insurance?

Floods can happen anywhere it rains, according to FloodSmart.gov, an official website of the Federal Emergency Management Agency (FEMA) and the National Flood Insurance Program (NFIP). In fact, one inch of flood water can cause as much as $25,000 worth of damage.

If you live in a high-risk flood area, you have a one in four chance of experiencing a flooding event during the course of your 30-year mortgage. Because of this likelihood of damage, your lender will generally require you to purchase a flood insurance policy.

Homeowners In Low Risk Areas

But just because you live in a lower-risk area doesn’t mean that you don’t need flood insurance. From 2014 to 2018, homeowners located outside of high-risk flood areas filed more than 40% of NFIP flood insurance claims and accounted for one-third of federal flood disaster assistance issued.

Only you know your tolerance for risk. The good news is that flood insurance is far less costly in areas at low risk for flooding, so you may find that the price is worth the peace of mind that insurance offers. To estimate the losses you could incur from just a few inches of flood water, check out the FloodSmart flood damage calculator.

Risks Can Change

Don’t be surprised if you’re in one of these moderate- to low-risk areas and later on, your lender notifies you that you are required to purchase flood insurance. Flood maps are constantly being redrawn – and your property location could become designated a high-risk area.

Why and how do maps change? Because weather conditions are dynamic and affected by a wide variety of factors.

There are three ways that flood maps can be changed:

1. FEMA initiated changes, as FEMA funding allows
2. Community initiated changes, as communities seek to correct errors or omissions on FEMA maps
3. Cooperating Technical Partners Initiative, which taps state and local resources to develop more accurate information to continually improve FEMA maps

Types Of Flood Insurance

There are two main types of flood insurance: NFIP and private flood insurance. Let’s go over more information about both types to decide which is the right fit for your home.

National Flood Insurance Program

NFIP is offered through FEMA and is backed by the federal government. NFIP is available for homeowners, business owners and even renters in qualifying communities to purchase and protect themselves from a flood.

NFIP is available to any homeowner living in high-, moderate- or low-risk areas. You can find out if your area falls into one of these categories by using FEMA’s Flood Map Service Center or by reviewing FEMA's Eligible Communities list.

How To Qualify For NFIP

Currently, there are more than 20,000 communities across the nation that participate in NFIP. You can find out if your community participates by looking up your address in FEMA’s Community Status Book. If your community does participate, you can apply online or call (800) 621-FEMA to enroll in a policy. Most NFIP policies take 30 days to go into effect, so you’ll want to activate your policy before you close on your home.

What Does NFIP Cover?

It’s important to understand exactly what this type of flood insurance covers before you purchase it. With the right policy, NFIP does cover major flood damages. With standard NFIP coverage, you’re protected against damage caused to your property as a result of a sewer backup.

But what about the contents of your home or the building itself? You’ll need to purchase separate policies, also offered by NFIP, to ensure that these parts of your property are covered.

With NFIP contents coverage the following items are covered:

• Personal belongings, furniture, clothing, electronics and curtains
• Carpets
• Washers and dryers
• Portable appliances (microwaves, air conditioners and dishwashers)
• Original artwork
• Freezers and their contents (refrigerators are not included)

With NFIP building coverage the following items are covered:

• Plumbing, electrical and furnace systems
• Sump pumps, water pumps and water heaters
• Refrigerators, dishwashers and stoves
• Installed carpeting
• Built-in bookcases, paneling, wallboard and cabinets.
• Foundational walls and staircases
• Window blinds
• Detached garages

How Much Does NFIP Cost?

The average cost for flood insurance across the nation ranges between $800 – $1,200 per year, according to FEMA. Keep in mind this range can vary depending on where you live in the country, your location’s flood risk, your deductible, your policy coverage and any additional coverage plans you get, like contents and building coverage.

Is The National Flood Insurance Program Enough Coverage?

If you’re not sure whether FEMA’s NFIP will provide enough coverage for your home, it depends on how much coverage you actually need. Let’s look at the limitations of NFIP to get a better sense of what’s not covered.

For residential properties, NFIP does not cover damage that:

• Costs more than $250,000 for the building and $100,000 for the building’s contents
• Is caused by mold or mildew that you could have prevented or that is not directly caused by flooding
• Is caused by movement in the earth, even if this foundational shift is caused by flooding
• Is outside your building but on your property (e.g., decks, septic systems, swimming pools, hot tubs, wells or trees)

If you think you’ll need more coverage than what NFIP offers, there are other options available through private flood insurance, which can be purchased in addition to your NFIP policy or in place of one.

Private Flood Insurance

Private insurance companies are able to offer flood protection coverage in a variety of ways:

• They can provide NFIP plans.
• They can reinsure NFIP plans.
• They can take on the risks of damages on their own by offering private flood insurance policies.

Most private flood insurance policies are aimed at providing commercial property coverage or secondary coverage on homes with a replacement cost that exceeds $250,000. As of July 2019, federal law mandates that flood insurance policies must provide coverage that is as broad as the coverage offered by NFIP. Private insurers may offer flood insurance plans outside of the NFIP through its Write Your Own Program.

You can get a quote from your current homeowners insurance provider to find out how much coverage they offer and to decide whether you’d prefer to go with NFIP, purchase supplemental coverage or take out a policy with your existing provider.

How Much Flood Insurance Do I Need?

Knowing how much coverage you need can help you decide which type of flood insurance is best for your home. In order to figure this out, take a look at the worst-case scenario: How much would it cost to rebuild your home? Although you can use your home’s value to determine this, you might want to reach out to your homeowner's insurance company to find out an estimated rebuild cost.

If this cost is under $250,000 and you’re in a qualifying community, NFIP will provide the protection you need. If it’s higher, you’ll want to reach out to private insurance companies to find out how much supplemental or full coverage will cost to cover your home’s rebuild value. For example, if you want your building covered for $300,000 but know that NFIP only covers up to $250,000, you could turn to private flood insurance to fill the $50,000 gap.

Even if your home’s rebuild cost is under $250,000, you might want to check with your current insurance provider so you can compare quotes from their policies with NFIP coverage.

The Bottom Line: Flood Insurance Is Important To Protect Your Property

Your homeowners insurance plan protects your home from many damages and risks. However, if disaster strikes in the form of a hurricane, tropical storm or excess rainfall that leads to flooding, you’ll need to have a flood insurance policy in place.

Learn more about how to properly prepare for natural disasters with our disaster preparedness checklist.