Flood insurance: Who needs flood insurance & why?

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Floods are the nation’s most common disaster, and the costliest, according to the Federal Emergency Management Agency (FEMA). Nine out of 10 natural disasters involve flooding. According to FEMA’s data, one inch of floodwater can cause $25,000 in damage, and 99% of counties in the United States have had a major flooding event between 1996 and 2019.

Rainstorms 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. Dealing with floodwater is part of being a homeowner.

Flood insurance is a way to protect yourself financially from flooding even if you can’t keep your basement dry. However, this type of coverage isn’t included in homeowners insurance, so you’ll need to get an individual policy. You should always read the fine print to understand your coverage.

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 $744 as of the end of 2022.
When you buy a policy from FEMA’s National Flood Insurance Program, your home will be covered for up to $250,000.

How does flood insurance work?

Flood insurance covers losses directly caused by flooding and flood-related erosion. A flood is defined as excess water on land that is normally dry that covers at least two acres or damages at least two properties.

Homeowners who purchase an NFIP policy typically must wait 30 days before their policy offers coverage. 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.

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

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 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.

The contents of your home — such as furniture and appliances — are not covered unless you purchase coverage for them 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 seven years old, your insurance check will be reduced to reflect the age of the appliance.

If you need additional coverage — or if your community does not participate in NFIP — you might be able to purchase coverage from a private insurer. These 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. While essential items — such as a water heater, oil tank and electrical panel — are covered, nonessential items are not. This includes furniture and carpeting.

Flood insurance policies do not reimburse living expenses should you temporarily relocate while your home is being repaired or replaced.

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

Who should get flood insurance?

Even people who don’t live in high-risk areas should get flood insurance. Over 20% 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.

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

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. And if you do not purchase a flood insurance policy, you might be declared ineligible for future disaster aid.

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

Alarmingly, though, very few homeowners have flood insurance. By the end of 2022, there were less than 4.7 million policies in force through the NFIP, a small fraction of the total number of homeowners in the U.S. NFIP provides the vast majority of the nation’s flood insurance coverage.

The ugly truth is that skipping flood coverage can be a massive financial mistake. The average flood insurance claim is $52,000 as of 2019, according to FEMA. And if you have no flood insurance policy, you’re on the hook for all the damages.

Where to buy flood insurance

Most flood insurance is sold through the NFIP. Dozens of 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 these policies directly through the government. If you need a referral to an agent, call NFIP at 888-379-9531.

How much does flood insurance cost?

The overall, national average annual cost of flood insurance is $744. Residential costs can range widely depending on the flood risk. Yearly costs in extremely low-risk areas can be as low as $63, while homeowners in very risky regions can pay thousands of dollars for an annual policy. So, you might pay much less — or a lot more — depending on where you live.

Flood insurance from a private vendor will also range in cost, and generally, flood insurance through NFIP is cheaper.

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

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

Since flooding due to one reason or another is essentially inevitable everywhere in the U.S., all homeowners should protect themselves with flood insurance. While most American homeowners do not have flood insurance, the financial peace of mind is worth the cost of the premium.

Sources:

Department of Homeland Security.“Natural Disasters: Flood.“Accessed March 2023.

FEMA.“Historical Flood Risk and Costs.“Accessed March 2023.

NFIP. “Policy Information by State and Community.“Accessed March 2023.

FEMA.“NFIP Fact Sheet.“Accessed March 2023.

Nupur Gambhir

Managing Editor

Nupur Gambhir is a content editor and licensed life, health, and disability insurance expert. She has extensive experience bringing brands to life and has built award-nominated campaigns for travel and tech. Her insurance expertise has been featured in Bloomberg News, Forbes Advisor, CNET, Fortune, Slate, Real Simple, Lifehacker, The Financial Gym, and the end-of-life planning service.