How do you know if you need flood insurance?

Do I need flood insurance?

If you live in a flood prone area, or a region prone to hurricanes, you are likely required to buy flood insurance by your mortgage company. Even if it's not required, you should consider buying it anyway. Home insurance doesn't cover flood damage, and it's the most common natural disaster in the U.S.

"Most homeowners policies do not include coverage for damage due to flooding caused by storms, the overflow of rivers and other bodies of water, or other natural disasters," says Ann E. Myhr, Senior Director of Knowledge Resources at The Institutes. This makes flood insurance a must have to fully protect your home.

"Purchasing flood insurance should always be considered as part of an overall insurance program. Those living in areas of a high flooding hazard that carry a mortgage on their property would be required by their lender to purchase and maintain flood insurance. Otherwise, the decision to carry flood insurance is optional, but important to consider," Myhr says.

Brad Goldsberry, with The Nate Bingel Agency in Northglenn, CO, suggests answering these questions about your property when considering flood insurance:

Has your property ever flooded?
Are you located in a 100-year flood plain?
Do you have a basement?
What's your risk tolerance?
Can you afford flood insurance?
Can you afford to not have it?

While flood insurance can be sort of pricey, especially if your home is on a waterfront, it can be a financial lifesaver if your home is severely damaged or destroyed by flooding.

What is flood insurance?

Flood insurance is a standalone insurance policy that specifically covers water damage caused by floods. While home insurance does cover sudden and accidental discharge of water, it doesn't cover overland flooding.

Most flood insurance is sold by the National Flood Insurance Program (NFIP), but it's also available through private insurers.

When is flood insurance required?

Flood insurance is required for federally backed mortgages if you live in a FEMA-designated Special Flood Hazard Area. These are zones that start with a 'V' (high-risk inland flooding), or an 'A' (coastal high-hazard areas with wave action).

You will be notified if you are required to purchase a flood insurance policy. Because risk maps change over time, your area may be added to or removed from a Special Flood Hazard Area on the map.

PEOPLE ASK

Do you need flood insurance in a 500-year floodplain?

Flood insurance is optional in a 500-year floodplain, but it is recommended. Per FEMA, these areas have a 1 in 500, or 0.2% chance, of flooding in any given year. However, flood risk is changing in many areas.

How much flood insurance do I need?

You should buy enough flood insurance to rebuild your home from the ground up; in other words, the replacement cost of your home. Flood insurance, like all homeowners insurance, protects your home up to the coverage levels you choose. The main issue with NFIP policies is that the top coverage level is only $250,000. So, if your home will cost more than $250,000 to rebuild, you will be paying the difference out of your own pocket.

Private flood insurance policies offer much higher limits. "Private flood insurance policies can often write coverage up to $2 million with personal property coverage of $1 million," says Roger Desjadon of Florida Peninsula Insurance.

"Compared to the NFIP, private market insurers are able to offer higher limits of coverage in excess of $250,000 as well as broader coverage for other structures on your property," says Thomas L. Santamorena, an insurance agent in San Francisco.

The bottom line: If your home's reconstruction cost is above $250,000, you should consider private flood insurance either as a supplement or al alternative to an NFIP policy.

PEOPLE ASK

What is the minimum amount of flood insurance required?

For federally-backed mortgages in Special Flood Hazard areas, lenders require enough flood insurance to match the replacement cost of your home or the NFIP's maximum of $250,000, whichever is less. If replacement cost exceeds $250,000, your lender may require a supplemental private policy to cover the gap.

Where do I buy flood insurance?

Flood insurance is available from two sources: the National Flood Insurance Program (NFIP), which is federally backed and the most common choice, and private insurance companies, which offer higher coverage limits and broader protection.

"Flood insurance is backed by the federal government through the Federal Emergency Management Agency (FEMA). FEMA does not write flood insurance directly, policies must be written through a licensed insurance agent. These policies are guaranteed by the government as they pay for the losses if something were to happen," advises Goldsberry.

NFIP policies have three key limitations:

Dwelling protection is capped at $250,000
Contents protection is capped at $100,000
A 30-day waiting period for coverage in most cases

Myhr offers the following tips when shopping for flood insurance:

Do your research. The FEMA website is a good source of information on flood insurance requirements. This site includes an interactive map that indicates areas that are more prone to flooding than other areas and consumers can enter their address to assess their individual exposure to flooding.
Ensure you're eligible. In order to be eligible for NFIP coverage, the property must be located in a participating community. This information is also available on the website.
Consider private flood insurance. In many cases, private flood insurance offers more robust coverage options. Private flood insurance enables property owners to supplement or replace the NFIP product, providing coverage that homeowners expect from their homeowners policies for exposures, such as outdoor property, detached structures, swimming pools, and basements.

How much does flood insurance cost?

The average cost of an NFIP flood insurance policy is $1,271 a year. However, the cost of flood insurance can vary dramatically depending on where your home is located and whether you use a NFIP policy or private insurance. Averages range from a low of $443 in Washington, D.C. to $2,039 in Connecticut.

Private flood insurance prices can also vary widely and for high-risk properties the premium is often a shock. As an example, to insure a house in Miami Beach, which is in the highest risk “V” zone, with a policy for $300,000 in building coverage combined with $100,000 in personal property and a $2,000 deductible can cost close to $20,000 annually.

If you move the same house to a low risk “A” zone that premium drops down to $3,714. This clearly illustrates how dramatically location can impact your premium.

It's important to remember that NFIP policies come with some pretty heavy restrictions. Coverage limits of $250,000 mean that many homeowners will have to supplement their NFIP policy with private flood insurance in order to be fully covered.

What is the flood insurance waiting period?

NFIP policies require a 30-day waiting period from payment for the policy to when the policy goes into effect. However, there are a couple of exemptions:

New loans: According to the NFIP website, "If the initial purchase of flood insurance is in connection with the making, increasing, extending, or renewing of a loan, there is no waiting period. Coverage becomes effective at the time of the loan, provided application and payment of premium is made at or prior to loan closing."
Revised flood maps: The NFIP site says, "If the initial purchase of flood insurance is made during the 13-month period following the effective date of a revised flood map for a community, there is a 1-day waiting period."

Private flood insurance companies set their own waiting periods; some have no wait.

Final tips for buying flood insurance

Here are a few final tips regarding flood insurance:

Flood insurance is available not only for single-family homes, but for condo owners and renters as well. If you live in a high-risk area, consider coverage.
Your home insurance company may work with the NFIP through the Write-Your-Own program, allowing you to buy your coverage through a company you're familiar with.
Shop around, especially if you're in a lower-risk area. You could save a lot of money and get better coverage by comparing your options.

FAQ: Do you need flood insurance?

Is flood insurance necessary?

Flood insurance is necessary if required by your mortgage; this generally applies to federally-backed mortgages in Special Flood Hazard Zones as defined by FEMA. Otherwise, it's optional, but since floods are the most common natural disaster in the U.S., it's highly recommended.