Flood insurance: How it works, what it costs and who needs it| Insure.com

Why you can trust Insure.com

Quality Verified

At Insure.com, we are committed to providing honest and reliable information so that you can make the best financial decisions for you and your family. All of our content is written and reviewed by industry professionals and insurance experts. We maintain strict editorial independence from insurance companies to maintain our editorial integrity, so our recommendations are unbiased and are based on a comprehensive list of criteria.

Floods are the nation’s most common disaster, and also the costliest, according to the Federal Emergency Management Agency (FEMA) and Ready.gov (the national public service website that promotes readiness for emergencies). Each year, U.S. homeowners suffer millions of dollars in flood-related damages. In 2019, due to several large-scale flood events in the U.S., damage costs were estimated to be at least $20 billion by the National Center for Environmental Information (NCEI).

Even if you’re inland, you’re not necessarily immune to flooding. FEMA says that 99% of U.S. counties were impacted by flooding even between 1996 and 2019.

Rain storms and hurricanes are well-known sources of flooding. But melting snow, failed dams and levees, blocked storm drainage systems, and other factors can trigger flooding.

Key Takeaways

If you live in a high-risk area, and have received federal disaster assistance, you might need to buy flood insurance.
Homeowners insurance does not offer protection against floods. You need to buy a separate policy for flood insurance.
According to FEMA, the national average cost of flood insurance is $700.
When you buy a policy from NFIP, your home will be covered for up to $250,000.

Homeowners insurance does not protect you in the event of a flood. Instead, you need to buy a separate flood insurance policy for your home and its contents.

Top misconceptions about flood insurance

You can get flood insurance nationwide.

You can get flood insurance if you live in a floodplain or high flood-risk area.

You can get flood insurance if you live outside a floodplain, or in a low to moderate flood-risk area, and at lower cost.

You can get flood insurance if your property has been flooded before.

You can get flood insurance from insurance agents in your area.

You can buy flood insurance even if your mortgage lender doesn’t require it.

Source: National Flood Insurance Program

And yet, very few homeowners have this coverage. In 2018, just under 5.2 million policies were in force through the National Insurance Flood Insurance Program (NFIP), according the Insurance Information Institute. NFIP provides the bulk of the nation’s flood insurance coverage.

Skipping coverage can be a huge financial mistake. The average flood insurance claim is about $52,000, according to FEMA. Damage from just 1 inch of water can top $25,000.

If you have no flood insurance policy, you are on the hook for all the damages.

Who needs flood insurance?

Even people who don’t live in high-risk areas need flood insurance. More than 20 percent of flood claims come from properties located outside high-risk flood zones, according to FEMA.

And if your home is damaged from a flood, federal disaster funds won’t necessarily pay for repair and replacement. If you do receive federal funds, such aid is typically issued in the form of a low-interest loan from the Small Business Administration. That means you must pay back the money over time.

Depending on where you live, buying flood insurance might be mandatory. Federal law states that regulated or insured lenders must require flood insurance on homes located in high-risk flood zones.

Also, you might be required to purchase flood insurance if you live in a high-risk flood zone and have received federal disaster assistance in the past. If such circumstances apply to you and you do not purchase a flood insurance policy, you might be declared ineligible for future disaster aid.

Finally, your lender might require you to carry flood insurance even if you do not live in a high-risk area.

To better gauge, your flood risk, check out FEMA’s webpage which shows a map of high-risk areas in your state.

What does flood insurance cover?

When you purchase a policy through NFIP, your home is covered for up to $250,000. Coverage is available in one of the following forms:

Replacement cost basis. This means you will be reimbursed for the cost of new materials and construction at their current value.
Actual cash basis. This means you will be reimbursed for the cost of materials minus depreciation.

It’s important to note that your contents — such as furniture and appliances – are not covered unless you purchase such coverage separately.

Policies are available to cover up to $100,000 in contents, but only on an actual cost basis. For example, if your refrigerator is 7 years old, your insurance check will be reduced to reflect the age of the appliance.

If you need additional coverage beyond these limits — or if your community does not participate in NFIP — you might be able to purchase coverage from a private insurer. Such policies typically do not come with a deductible.

What doesn’t flood insurance cover?

Coverage of contents in a home’s basement is limited under NFIP plans.

For example, while essential items — such as a water heater, oil tank and electrical panel — are covered, nonessential items are not. This includes furniture and carpeting. Also, flood insurance policies do not reimburse living expenses should you temporarily relocate while your home is being repaired or replaced.

Federal flood insurance also is not available in communities that have not met the federal government’s requirements for adequate floodplain management regulations. To find out if your community participates in NFIP, check out FEMA’s community status reports.

Where can you buy flood insurance?

The vast majority of flood insurance is sold through the National Flood Insurance Program. However, around 120 private insurers also sell this type of coverage.

To purchase an NFIP policy, you will need to consult with an insurance agent. You cannot buy such policies directly through the government. If you need a referral to an agent, call NFIP at 888-379-9531.

What does flood insurance cost?

The overall, national average cost of flood insurance is $700, according to FEMA, but according to the NFIP, premiums for a residential residence in a low-risk flood zone range from $146 to $474. So, you might pay much less – or a lot more – depending on where you live.

If you buy flood insurance from a private company, you’ll also see a wide range in cost for flood insurance, depending on location. For instance, a house in Miami Beach in a high-risk zone would cost around $18,700 to insure, but that same house in a low-risk zone costs $15,000 less, or $3,700, according to privatemarketflood.com.

Periodically, FEMA issues maps that reveal the risk of flooding in communities across the U.S. Areas that are at greatest risk are designated as Special Flood Hazard Areas.

If your home is located in one of these areas, you likely will pay more for coverage. To look at the latest maps, check out the FEMA website.

Several other factors can impact costs, including:

The year your home was built
The number of floors in the home
The location of the contents
The deductible amount and amount of coverage

How does flood insurance work?

Damages related to flooding and flood-related erosion fall under the scope of flood insurance. Flood insurance covers losses directly caused by flooding In basic terms, a flood is defined as excess water on land that is normally dry, covering at least two acres, or damages at least two properties.

Homeowners who purchase an NFIP policy typically must wait 30 days before it goes into effect. This rule is in place to prevent people from waiting to buy a policy until flooding is inevitable.

However, there are several exceptions to the 30-day rule, including if you have just purchased a home. Also, private flood insurance providers tend to have a shorter waiting period of 10 to 14 days instead of 30.

If you need to file a flood insurance claim, you should report your loss as soon as possible to your insurance agent.

(Graphic courtesy of NFIP/FEMA)

Penny Gusner

Contributor

Penny is an expert on insurance procedures, rates, policies and claims. She has extensive knowledge of all major insurance lines -- auto, homeowners, life and health insurance. She has been answering consumers’ questions as an analyst for more than 15 years and has been featured in numerous major media outlets, including the Washington Post and Kiplinger’s.