Cost & Coverage
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Your guide to understanding how much flood insurance you need, how to buy flood insurance, its cost and coverage limits, and how to prepare for a flood event.
Flood insurance is a type of property insurance that covers what your homeowners and renters insurance doesn’t: damage caused by floodwaters. To protect your home and personal belongings from coastal flooding, river flooding, flash flooding or even groundwater flooding, you’ll need a flood insurance policy.
Homeowners in all 50 states can get flood insurance through the National Flood Insurance Program (NFIP), a federal government program created by the Federal Emergency Management Administration (FEMA) in 1968. If you don’t live in a community that participates in the NFIP, you may be able to find coverage on the private flood insurance market.
As of 2017, there were over five million residential NFIP flood insurance policies — constituting around 95% of all flood insurance policies on the market.
In this guide:
The average NFIP policy costs around $700, according to the latest data released by the FEMA. Those figures don’t include cost information about private flood insurance policy (which makes up about 5% of the flood insurance market). There isn’t much information out there about the cost of private flood insurance, but certain insurers, like Neptune, claim to offer 25% cheaper rates than the NFIP.
If your property is located in a moderate- to low-risk area, you may be eligible for a low-cost flood policy through the NFIP. Also called a Preferred Risk Policy (PRP), these policies can run as low as $200, according to FEMA.
Flood insurance is required if all of the following conditions apply:
Keep in mind that your lender can still require you to get flood insurance even if you only live in a moderate- to low-risk area. If your home is in an SFHA but your community doesn’t participate in the NFIP, you won’t be able to get flood insurance through the NFIP, but your lender could require that you get private flood insurance.
It’s also important to note that, per federal law, federal agency lenders such as the FHA and the VA are not permitted to insure properties located in non-participating communities. Furthermore, Fannie Mae and Freddie Mac are not permitted to purchase properties located in non-participating communities.
In order to receive disaster aid from FEMA or low-interest loans from the Small Business Administration (SBA) following a Presidential Disaster Declaration, you need to have flood insurance.
Flooding is one of the most pervasive and expensive natural disasters in the U.S. In fact, 98% of counties in the U.S. are impacted by a flood event, according to FEMA, and a startling 90% of all natural disasters in the U.S. involve flooding, according to the Insurance Information Institute (III).
Here are some other factors that highlight the importance of flood coverage:
If you live in moderate- to low-risk areas, it’s also crucial to get flood protection. According to the NAIC, around 20% of claims and half of total flood losses in the U.S. occur outside of the 100-year floodplain, yet a miniscule 1% of properties outside of SFHAs have flood insurance.
As we touched on in the cost section, flood insurance in moderate- to low-risk areas can be as cheap as $200 a year. That’s a small price to pay for coverage that potentially prevents you from going into financial ruin.
Consider flood insurance if you live near the following areas:
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In order to get the standard NFIP flood insurance, you need to live in one of 22,000 participating communities. If you live in a participating community, you can buy NFIP coverage a couple different ways: through an NFIP Direct Servicing Agent or through a private insurance company.
You can check here to see if your company services NFIP flood insurance. Nearly all major property insurance companies offer coverage through the NFIP.
If you don’t live in a participating community and need flood coverage, you may be able to get private market flood insurance. Ask around to see which carriers offer private flood insurance in your area.
Keep in mind that there is typically a 30-day waiting period before NFIP flood insurance kicks in and you’re actually able to use it. The NFIP typically puts a moratorium on flood insurance on June 1 (the start of hurricane season), which means you’ll need insurance at least 30 days prior to hurricane season before it’ll go into effect. (That rule goes for any type of flood damage, not simply flood damage during hurricane season.)
If you go the private flood insurance route, you’ll typically encounter two options: a primary flood insurance policy which operates similarly to an NFIP policy but may offer cheaper rates and higher coverage limits, and an excess flood insurance policy, which provides higher levels of protection over and above your NFIP policy.
With flood insurance, you’re reimbursed for direct physical damage up to the insured limits in your policy.
In the event of a loss to the structure of your home, you’ll be reimbursed at replacement cost (RCV), which means depreciation or the age of your home won’t be factored into your reimbursement amount. You’ll simply be reimbursed for new materials of similar type and quality. However, loss or damage to items in your home is only reimbursed at their actual cash value (ACV), which means the items’ depreciation are deducted from your claim check.
An NFIP home flood insurance policy includes building coverage, with the option of adding on contents coverage for an additional premium. Here are some coverage features and limitations of those coverage components.
A standard NFIP flood insurance policy does not include coverage for your additional living expenses like temporary housing while your home is being repaired due to flooding. However, additional living expenses, also known as loss-of-use coverage is a common coverage component in private flood insurance policies.
Here are the top writers of private flood insurance in the U.S. by total direct premiums, according to an Insurance Journal report. Direct premiums are the amount insurance companies make off of each individual insurance policy.
|Insurance company||Total direct premium|
No, homeowners insurance doesn’t cover flooding.
That doesn’t mean homeowners insurance doesn’t cover water damage entirely — it does in certain instances. If a pipe bursts in your home and damages your property, that’s typically covered by your home insurance policy. If a windstorm damages your roof and wind-driven rainwater enters from the outside and damages your stuff, the wind would be considered the “proximate cause” of the damage and you’d be covered.
However, you’ll need a separate flood insurance policy to protect your home from water that flows in from outside its four walls.
You can check for your home’s flood risk through FEMA’s Flood Map Service Center here. Understanding where your home is located on FEMA’s flood map is a good way to understand your risk and insurance needs. Flood risk levels are generally broken up into three categories:
Also called 100-year floodplains, high-risk areas have at least a 1% chance of flooding each year. If you live in a high-risk area and in an NFIP participating community, you’ll most likely be required to get flood insurance.
These areas have less than a 1% chance of being flooded each year, but it’s still strongly suggested that homes in these areas get flood insurance. Your lender may require you to get flood insurance anyway.
Undetermined risk areas are areas that simply haven’t made it onto the FEMA map and therefore risk hasn’t been assessed. Because of the unknown risk involved, flood insurance in undetermined areas may cost more. Keep in mind that more than half of the homes damaged by Hurricane Harvey’s floodwaters were in undetermined flood areas.
If you live in a SHFA, your insurance agent will most likely ask for an elevation certificate (EC) when you apply for NFIP flood insurance. The information provided in an EC is crucial in determining your flood insurance rates. It also documents the elevation of your building for the floodplain management coordinators in charge of establishing building ordinances.
An elevation certificate indicates how elevated your building is compared to your region’s base flood elevation (BFE). An area’s BFE is the elevation that floodwaters have a 1% or greater chance of reaching in any given year. The higher your home’s lowest floor is, the lower risk it has of being flooded, which means lower flood insurance rates.
One of the easiest ways to protect your home and personal belongings within it from flooding is to make sure it’s properly insured. But there are a number of hands-on measures you should take as well.
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