Guide to flood insurance: Here’s what to know

Floods are the nation’s most common natural disaster, but the devastating damage that flooding can cause is not covered under a standard homeowners, condo owners or renters insurance policy. You may consider buying flood insurance to protect your financial assets from flood damage.

Flood insurance covers damage caused by flooding that is externally caused. This includes flooding from heavy rains, snowstorms and storm drains overflowing or levees. Flood insurance may be more than a smart financial decision. It could even be required. If your home is in a flood zone, your mortgage lender may require that you have flood insurance.

How does flood insurance work?

Flood insurance is a separate insurance policy that protects your home and personal property from flooding-related damage. Flooding refers to the overflowing of water onto land that is usually dry. However, there are certain exclusions to flood policies. Flood insurance does not usually cover mudslides.

Flood insurance is advantageous because flood-related loss are not covered by traditional homeowners, condo owners, or renters insurance. Flood insurance policies can be purchased through the National Flood Insurance Program, (NFIP), and private insurance companies. However, a few homeowners insurance companies, such as Kin, offer flood coverage as an endorsement.

There is typically a 30-day waiting period that applies to flood insurance policies. This period can be waived in certain situations, such as if you need flood insurance for closing on or refinance your home, and if your home is included in a newly-designated flood zone within a specific timeframe.

What flood insurance covers?

Flood insurance policies from NFIP only offer two coverages: dwelling coverage and contents coverage.

  • Dwelling coverage is essential for flood insurance. You cannot cancel your dwelling coverage. Dwelling coverage offers financial protection against flooding damage to your home, built in appliances, and attached structures.
  • Contents coverage: Your belongings are covered up to the policy limits. You can buy NFIP flood insurance without contents coverage.

Private insurance companies can offer flood insurance coverage that is more flexible than the NFIP, since they are not required to pay out government claims. Private carriers may be able to offer higher coverages than the NFIP, or you might be able to purchase different coverages. Similar to home insurance, you might get quotes from several carriers to help you find flood insurance that suits your needs.

What is not covered by flood insurance?

Like home insurance policies, flood insurance policies have exclusions. Flood insurance does not cover water damage, mold or mildew that could have been avoided. Commonly, damage to outdoor property such as decks, patios, and pools is excluded from flood insurance. Also, landscaping is not covered. If you are displaced due to the damage to your home, your flood insurance policy does not include additional living expenses coverage.

Flood insurance covers damage from true floods. Flooding can be defined as the accumulation of water on otherwise dry ground. Water damage caused by internal sources in a home — like failed sump pumps causing water to back up in a basement or a burst pipe causing water damage to a wall or floor — are not covered by flood insurance but might be covered by your home insurance policy, depending on the coverage you have.

Do I need homeowners insurance?

Homeowners insurance and renters insurance policies may offer protection for plumbing-related flood damage and water leaks, but they will not cover losses due to naturally occurring floods. Flooding can cause severe damage to a community. Private insurance companies are often not able to handle the financial strain of having to pay large claims. Insurance companies will need to raise home insurance premiums to ensure flood damage claims can be paid.

Although you may think your area is relatively safe from flooding, the Federal Emergency Management Agency (FEMA) reports that 99% of all U.S. counties have experienced a flood event between 1996 and 2019. Flood damage claims average $52,000 in NFIP.

Flood insurance is a must. Each homeowner will have to answer the question differently. Flood insurance might be required if you:

  • If your home is located in a flood area, you may need to have a government-backed loan. In this instance, mortgage companies may require flood insurance. It is important to note that flood insurance premiums are usually due in full at the time of purchase.
  • Your home is located in a high-risk flood zone. You can check your flood risk using FEMA’s mapping tool. Flood insurance policies are a great idea if flooding is likely or common in your area. There is usually a 30-day waiting period so don’t wait until there is flooding.
  • Flood damage is not something you can afford. Your property may flood even if it is not located in a flood zone. Flood insurance is a good option if you don’t have the funds to fix your home or replace all your belongings following a flood.

Different types of flood insurance

Flood insurance could only be purchased through the NFIP in the past. In the past few years, however, private insurers have begun to offer flood insurance. Understanding the differences between NFIP and private flood insurance coverage can help you choose the right flood insurance company to get quotes from. You might be able to decide which option is best for you by getting quotes from a few insurers as well as the NFIP.

National Flood Insurance Program (NFIP).

Federally-funded flood insurance is available to homeowners through the National Flood Insurance Program. NFIP insurance is open to all, regardless of flood risk. It offers coverage up to $250,000 for buildings and $100,000 for contents. Commercial properties can get up to $500,000 of building coverage and $500,000 for contents. These coverages usually have separate deductibles, so they may need to be purchased separately.

Over 50 insurance companies offer NFIP services and write policies. You can ask your home insurance provider for a flood insurance quote. This could help you to find flood insurance. If your carrier doesn’t offer coverage, you can purchase coverage directly through the NFIP.

Flood insurance for private individuals

Private flood insurance covers your home and contents against flood damage. However, it does not receive federal support. Private flood insurers, on the other hand, are companies that rely on a reinsurance company or money from premiums to pay for losses. Instead of the federal government covering your flood insurance policy it will be underwritten independently.

Private flood insurance is more comprehensive than NFIP policies. You might also have more coverage options and higher policy limits with private policies than federally underwritten policies. Private flood insurance may have shorter waiting periods than the 30-day period required by NFIP.

What is the cost of flood insurance?

In 2019, the average flood insurance premium through the NFIP cost $700 annually. FEMA will use its Risk Rating 2.0 program in October 2021 to determine premiums. It will consider a variety of factors. This program will help close the price gap between homes of lower and higher value and accurately rate each property’s likelihood of flooding damage.

Rates for private insurance coverage will vary from one company to the next. Flood insurance prices will vary depending on many factors.

  • Flood risk and flooding zone
  • Construction and age of the home
  • Limitations on coverage
  • Deductible level

Flood insurance policies usually have a paid in-full requirement. You should therefore be ready to pay the entire premium when you buy the policy.

Flood insurance: How can you lower your flood insurance costs?

While flood insurance can be expensive — often more expensive than the cost of your home insurance policy — the Risk Rating 2.0 system is expected to lower the cost of flood insurance for many NFIP policyholders. There are many ways to lower your premium, regardless of whether you have a policy with the NFIP or a private carrier. Bankrate’s guide to the cost of flood insurance offers some helpful tips about how you can potentially lower your flood insurance premium.

Flooding could occur regardless of the flood risk in your area. Flood insurance protects your financial assets in the event of flooding. Flood insurance is an important part of any financial plan.

Questions frequently asked

Which are the top flood insurance companies?

Flood insurance companies that are best for you are those that meet your budget and coverage requirements. There is no one best flood insurance company because everyone is different. It is a great way to compare your options and find the right policy for you.

What amount of flood insurance do you need?

Flooding can cause severe damage, so it is worth considering insuring your home up to its replacement cost to protect your financial position and avoid having to pay out for costly repairs. You can choose to opt out of contents coverage but it might not be the right choice. If you do not purchase contents coverage, the cost of replacing or repairing your belongings following flood damage will not cover.

Flood insurance covers flooded basements

It all depends on the circumstances of the flooding and your policy details. Flood insurance will not cover a basement that floods due to a failure of a sump pump. However, your home insurance may cover the damage if you have a water backup endorsement. Basements are prohibited in new constructions in high-risk locations. Basements are more at risk of severe flooding damage than other areas. Talk to your agent to learn about your coverage.