Flood insurance is required if you live in a high-risk flood area and your home is mortgaged with a federally regulated or insured lender.
Updated March 30, 2021|6 min read
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Unlike homeowners insurance, flood insurance usually isn’t required by lenders. But if your home is in a special flood hazard area according to government flood maps and it’s mortgaged through a federally regulated or insured lender, or you receive disaster assistance from the federal government, your bank will require you to get a flood policy. Your mortgage lender could also require flood insurance even if you don’t live in a high flood risk area.
If your mortgage doesn’t have a flood insurance requirement but your home still faces some flood risk, you should look into flood protection anyway. Coverage is relatively cheap if you don’t live in a flood-prone area, costing as little as $150 a year. It’s also important to note that Federal flood maps are often outdated and may be underestimating your flood risk, as these maps don’t account for intense rainfall and other flood conditions exacberated by climate change.
If you live in an area at risk of flooding, you should get flood insurance
Lenders often require flood insurance if your home is in a high flood risk area
To find out if you need flood insurance, check government flood maps or talk to local insurance agents
Mortgage lenders generally don’t require flood insurance unless they are required by law to do so. If either of the following applies to you, you’ll likely need to get flood coverage.
You live in a high-risk flood zone and have a mortgage with a federally backed lender, like a Federal Housing Administration (FHA) loan or VA loan.
You live in a high-risk flood zone and receive federal disaster assistance, like Federal Emergency Management Agency (FEMA) grants or low-interest disaster loans from the Small Business Administration (SBA).
Mortgage servicers can also require flood insurance even when they’re not federally mandated to do so. Your mortgage requirements are ultimately going to come down to the agreement between you and your lender. Before closing on a mortgage, be sure to read the fine print of the contract so you understand the different obligations and expenses you’re responsible for.
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You should have enough flood insurance to cover a complete rebuild of your home in the event that it needs to be gutted and rebuilt after flood damage. You should also make sure you have sufficient coverage for all of your personal belongings inside the home.
Pay attention to how you’re reimbursed for a claim. Your insurer may give you the option to insure your home and personal belongings at their replacement cost, which means you’re reimbursed the full replacement value of your home or items. This is the highest quality insurance option. You may also be tempted to go with actual cash value reimbursements for a cheaper insurance premium. Actual cash value, while slightly cheaper than replacement cost, only reimburses you the depreciated amount of your damaged property, which means you could be left paying more out of pocket for a loss.
When choosing flood coverage, you might find a few different options: a standard National Flood Insurance Program (NFIP) policy serviced by the government, a private “excess flood” policy to supplement your NFIP policy, and private flood insurance.
An NFIP policy — backed by the federal government and administered through private insurers — covers your home’s structure up to $250,000 and your personal property up to $100,000. Any detached structures on your property are covered by 10% of your dwelling coverage limit. A standard policy will only include coverage for your home, so you’ll need to add personal property coverage separately for an additional amount.
Government flood insurance is fairly limited, which is why many people get an excess flood policy to supplement their NFIP policy.
Since NFIP coverage limits sometimes aren’t high enough to fully protect your home and belongings, many insurance companies offer excess flood insurance to supplement your NFIP policy. Excess flood insurance increases your coverage limits if damage to your home exceeds $250,000 or damage to your personal belongings exceeds $100,000. It also generally includes replacement cost coverage for your home and personal belongings and additional coverage components like loss assessment and loss of use coverage.
Some insurance companies have their own flood insurance independent of the federal government. Private flood insurance coverage limits are typically higher than NFIP policies, and in some cases the policies are cheaper.
Private flood insurance is typically available in the form of a standalone policy or endorsement to your home insurance policy. You can find private flood insurance through the provider that insures your home or excess and surplus carriers (carriers that only write flood insurance).
The average cost of NFIP flood insurance is around $700 a year, but the amount you pay will depend on your home’s flood zone, its makeup and build, and whether or not your home is elevated above the base flood elevation (BFE) in your community.
If you live in a high flood risk area, there’s a good chance that your lender is going to require flood insurance like they require homeowners insurance.
If your lender doesn’t require flood insurance, you should still consider it anyway. Over the course of a 30-year mortgage, homes in floodplains have a 25% chance of being flooded, and are five times more likely to incur flood damage than fire damage, according to the Insurance Information Institute (III). And that likelihood may be even higher if you live on the coast or by a river.
Additionally, all it takes is one inch of water in a home to cause more than $25,000 in damage, according to FEMA.
If you live in a moderate-to-low-risk flood zone, the chances of your residence being flooded are significantly less, but you should still consider flood coverage. For starters, flood insurance in low-risk areas is cheap, costing as little as $150 a year, according to the National Flood Insurance Program. Additionally, 20% of flood claims happen in moderate-to-low-risk areas, according to the III.
If you live in a state that borders the Gulf or a Southern Atlantic coastal state, you may want to consider flood insurance even if you don’t live in a flood hazard area. More than half of the homes damaged by Hurricane Harvey’s flood waters were outside even the moderate-to-low-risk flood zones.
You should also consider flood insurance if you live near the following areas:
A newly developed area where water has nowhere to absorb
An area prone to wildfires where the soil is water-resistant
At the base of a mountain where water runoff or mudslides are common
To find out if your residence is located in a flood zone, FEMA has a handy search tool you can use. You simply plug in your address, and once the map is generated, it’ll indicate the date that the hazard map was created and what your flood risk is as of that date.
The date is important, because although your home may sit in a “minimal hazard zone” according to the FEMA map, that may not tell us much if the map was updated 15 years ago. If you suspect your community’s flood map is outdated, check with your local insurance agent and get their take, or see if other policyholders in the area have flood coverage.
Flood coverage in low risk areas can be pretty cheap, so adding flood coverage might be worth the additional protection and peace of mind.
To buy flood insurance, check with your homeowners insurance company to see if they sell NFIP policies, excess flood insurance, or their own private flood policy or endorsement. Nearly all standard insurance companies write and service NFIP policies, according to the III.
You should also keep in mind that there’s a 30-day waiting period on NFIP policies. Flood season in the U.S. typically begins in late spring and lasts until fall, so if your home is at risk, make sure your policy is in force far in advance of that.
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