Flooding is a becoming a more common occurrence, even in places not typically used to high levels of flooding. If you're a homeowner, your home insurance policy may not cover flood damage. But what is flood insurance exactly? Use our guide to find out more.
Flood Insurance Definition
This type of policy is coverage for damage to or loss of your dwelling and personal property due to a flood. This type of policy, a subtype of "single peril" insurance, offers financial reimbursement for that which was lost in the flood. A policy may offer to pay the replacement value or the Actual Cash Value (ACV).
Do You Need Flood Insurance?
You may not think about having coverage until the flood waters are receding and you're assessing the damage done. While your regular homeowner’s insurance policy will cover you against fire, wind, tornado damage and rain, water damage from floods is typically not a covered peril. That's why having this type of insurance is so important.
Where to Buy Flood Insurance
You can buy these policies from the same insurance agent who sold you your home and auto policies, but chances are the insurance itself comes from the National Flood Insurance Program (NFIP). FEMA, the Federal Emergency Management Association, manages the NFIP. You can purchase a policy through any 1 of 60 accredited insurance agents or the NFIP Direct.
Private companies sell flood coverage as well. These companies are not financially backed by the government and their policies tend to be more expensive, though payout times and policy activation are typically faster.
What Flood Insurance Covers
Floods can happen anytime, anywhere. One inch of water can cause as much as $25,000 in damages, and many floods cause so much devastation that structures get torn down completely. Standard coverage includes:
- Home essentials like electrical and plumbing, furnaces, water heaters and air conditioners.
- Home appliances like refrigerators, dishwashers, washing machines and all major and built-in appliances.
- Carpeting and windows in your home. If the carpeting is permanently installed, it’s covered. Window curtains and blinds are covered, as well.
- Personal property including furniture, clothing and electronic equipment — anything that can be permanently damaged in the event of flood.
- Miscellaneous valuables like art and fur coats, up to $2,500 in value.
Flood insurance doesn’t cover:
- Damages caused by mildew, moisture or mold. Insurers consider these to be avoidable after-damages not caused directly by the flood.
- Financial losses due to the interruption of your business.
- Personal property on the outside of the dwelling like plants and trees, patios and fences.
- Valuable papers including stock certificates, precious metals and currency.
- Motorized vehicles like cars and tractors. These items should be covered by your auto insurance policy.
The maximum allotment for government-backed flood insurance is $250,000 for a building and $100,000 for contents and personal items. While you can’t purchase a policy with higher limits, you can choose coverage for a lesser amount.
Are you Required to Purchase Flood Insurance?
Most homeowners are not required to purchase flood insurance. If you live in a flood zone, however, flood insurance is most likely required. If you live in a high-risk area, your mortgage company will mandate the use of flood insurance.
If your mortgage is a Government-Sponsored Entity (GES) and you live in a high-risk area, you’re required to have flood insurance. The federal government backs about 50% of all mortgages through agencies like:
- U.S. Department of Veterans Affairs (The Veterans Administration)
- U.S. Department of Agriculture (USDA)
- Federal Housing Administration (FHA)
- Federal Home Loan Mortgage Corporation (Freddie Mac)
- Federal National Mortgage Association (Fannie Mae)
Chances are, the federal government backs your mortgage. If you live in or near a flood zone, you’re required to have flood insurance. Home mortgages through the federal government are great ways for first-time home buyers to qualify for a loan, but they come with stipulations.
What is a Flood Zone?
Flood zone is an official term designated by FEMA and the United States Army Corps of Engineers. It’s a complex process that determines whether or not a house requires flood insurance. If you do live in a flood zone, flood insurance is mandatory. If you live near a flood zone and it’s not required, it’s still a good idea.
Most private insurance companies don’t want to insure homes in flood zones. Even if they do, the cost is prohibitive. That’s why the federal government has tasked FEMA to offer special, government-backed flood insurance for people in high-risk areas. Because of the backing of the federal government, people in flood zones can get affordable flood insurance.
Learn more about flood zones here using our guide to flood insurance rate maps.
Does My Homeowners Policy Protect Me?
Your regular homeowner’s policy isn’t going to help you if you get caught in a flood. In case of a hurricane, if the winds don’t get you, the water levels will. Your regular homeowner’s policy will protect you from high winds and driving rain in case of a hurricane but not the standing water that’s left afterwards. That’s where the real damage begins. Most people don’t realize just how much damage flood waters can do.
Is Flood Insurance Expensive?
You never know when a flood will hit. You don’t have to live by the beach, below sea level or in a flood zone to get drenched by inches and inches of standing water. Floods can strike anywhere, from as little as a driving rain.
The good news is that coverage isn't always necessarily very expensive. The average homeowner in low- to moderate-risk areas pays less than $400 per year for flood insurance. Those in high-risk areas pay more, with the overall average coming out at around $700 per year.
Most policies in the United States comes via the NFIP through FEMA. It’s more cost-effective for the average homeowner and coverage limits are acceptable. If you’re looking to cover the basics but can’t afford to break the bank, government-backed flood insurance is the best deal for you.
You Never Know When a Flood Will Hit
No one knows when a flood will hit. A rainstorm that lasts several days can cause a seemingly harmless river to overflow its banks into your house. If this happens, your regular homeowner’s insurance policy isn’t going to help you.
Frequently Asked Questions
Is all flood insurance through FEMA?
Not all flood insurance goes through FEMA and the NFIP. Private insurance companies also sell policies. The main differences between the two are price and requirements.
While government-backed policies are often less expensive than private ones, they come with more requirements and fewer coverage options. Maximum coverage through the NFIP maxes out at $250,000. Private flood carriers go as high as $1 million. Why is this important? If you’re an average homeowner, $250,000 may very well be enough. If you have a more expensive home, or a business perhaps, you’re going to need more coverage.
Besides higher rates of coverage, private insurance companies offer more options as well, like living expenses while out of the home, business replacement income and enhanced coverage for detached structures. For a business or a farm, the number of detached structures can be high.
While FEMA requires a 30-day waiting period between the time you bought the policy and when coverage begins, private insurance coverage can start immediately. In short, if price is not your main concern, but coverage is, a private policy is better for you.
Is flood insurance worth the cost?
If there is any chance you might flood, yes, it’s is well worth the cost. If you live in a low-risk area, the $400 per year you’ll pay is nothing compared to the protection you’ll receive. You never know when a flood will strike, even if you don’t live in a flood zone.
With flood insurance, and homeowner’s insurance policies in general, it’s a good idea to do your homework and know exactly what you’re buying.
About Philip Loyd, Licensed Insurance Agent
Loyd has written for Forbes.com, Red News Real Estate, Therapist.com, IRA.com, McGraw Hill, TheStreet.com, WikiHow, GOBankingRates.com, S.R. Education, Society of Petroleum Engineers and BioTech Fortunes. He is a licensed insurance agent and financial advisor with both his series 6 and 7 certifications.