Homeowners’ Guide to Flood Insurance

What Determines the Cost of Flood Insurance?

If you live in a high-risk flood area, the average cost of National Flood Insurance Program (NFIP) flood insurance is about $888 per year. NFIP insurance is usually the only flood insurance you can buy. You likely will pay less if your home is in an area at low or moderate risk for flooding. In those areas, you probably qualify for the NFIP Preferred Risk Policy (PRP).

Also, the risk rating for your area can change. This happens when the Federal Emergency Management Agency (FEMA) uses new information to update your area’s Flood Insurance Rate Map. For example, the new map could raise the flood risk level for your area from minimal to moderate or moderate to high. These changes would raise the cost of flood insurance.

If this is happening in your area, it is important to take action quickly. It still may be possible to get flood insurance at a lower rate. For example, if you currently have flood insurance, you may be able to keep paying the lower annual cost for at least one more year when you renew your policy. You also may be able to get a lower rate for at least a year if you buy flood insurance before the effective date for the new rate map.

The NFIP calls these lower-rate options “grandfathering.” These grandfathering rules can be complicated, so ask your insurance broker for an explanation and advice. Here are some more factors that can determine the cost of flood insurance:

Flood Risk

The main factor determining flood insurance costs is a home’s flood risk. While all properties have some chance of flooding, only those in high-risk zones usually require coverage. However, there are exceptions as some insurance companies insist policy holders have flood insurance regardless of risk.

Even regions with lower flooding probabilities see claims, as FEMA notes 1 in 3 policies originate from moderate-risk areas. Since premiums reflect flood likelihood, higher-risk locations carry pricier policies. The FEMA flood maps reveal your home’s hazard level. Within high-risk zones, elevation matters as well. If your house is in a flood-prone area but it’s built on higher ground, like a hill, your flood insurance might be cheaper. This is because being on higher ground lowers the risk of flood damage, which means the insurance company is less likely to have to pay a claim.

Home Age and Construction

Insurers examine a property’s age and building methods. Older houses built prior to modern building codes and floodplain management regulations often struggle with flood resilience. Repairs require custom work, like replacing antique wood flooring that is no longer commercially available. Modern techniques help mitigate damage, such as openings that drain water quickly.

Coverage Type

As a homeowner, you will buy flood insurance for two separate things — building coverage and contents coverage.

Building coverage helps pay for flood damage to the structure of your home, including walls, floors, electrical and plumbing systems. Things like central air conditioning, furnaces, water heaters, sump pumps, refrigerators, stoves, and cabinets also fall under building coverage.

Contents coverage helps pay for flood damage to the things you own inside your home. These contents include things like televisions, computers, washers, dryers, portable dishwashers, clothes, toys, couches, and other furniture.

Ask your insurance broker to tell you everything that is covered. It is important to know what the insurance will help you pay for after a flood.

You likely will be buying flood insurance offered through the National Flood Insurance Program (NFIP). The highest amount of building coverage you can buy with this insurance is $250,000. The maximum for contents coverage is $100,000. (The coverage amount is the highest amount of money the insurance company will pay you for flood damage.)

Policy Limits and Deductibles

The more flood coverage you buy, the more you’ll pay for insurance. If you get a policy with high coverage limits, the insurance company may have to pay a lot in case of a large flood, so your payment goes up. Deductibles work the opposite way. A deductible is the amount you pay out-of-pocket if you make a claim. With a low deductible, you pay less and the insurance company pays more. So your monthly payment will be higher.

If you choose a high deductible, your monthly payment will be lower. But in case of a flood, you’ll have higher out-of-pocket costs. That could be a big financial hit.

It’s about finding the right balance for your budget. Don’t get so little coverage that you’d be stuck with huge costs in a flood. But don’t pay for more coverage than you need just to get a lower deductible. Talk to your insurance broker to pick limits and a deductible that make sense for your situation.

Insurance Company

Flood insurance used to only come from FEMA’s National Flood Insurance Program (NFIP). Private insurance companies could sell their policies, but everyone paid the same rates set by FEMA. While this is still largely true, some private insurers offer their own flood coverage. You can get quotes from different companies just like with regular homeowners’ insurance but rates and coverage may vary.

Shopping around is wise. Compare policy options from private insurers and from the National Flood Insurance Program. See which gives you the best deal based on your home’s unique risk. An independent insurance broker can check rates at multiple companies. Taking time to explore your options can pay off in savings or broader protection.

What is Covered by Flood Insurance?

Flood insurance covers physical damage to your building and/or belongings that flooding directly causes. For example, if sewer backup flooding happens because of an overflow from a storm, your policy would pay for damages.

However, coverage only applies when flooding is the direct cause of the damage. If a sewer backup results from a clogged pipe or equipment failure, it would not be covered. The flood must create the problem for insurance to pay for it.

Find general guidance below on items covered and not covered by flood insurance. Refer to your policy for the complete list.

What is Insured Under Building Property Coverage:

• The insured building and its foundation.
• The electrical and plumbing systems.
• Central air conditioning equipment, furnaces, and water heaters.
• Refrigerators, cooking stoves, and built-in appliances such as dishwashers.
• Permanently installed carpeting over an unfinished floor.
• Permanently installed paneling, wallboard, bookcases, and cabinets.
• Window blinds.
• Detached garages (up to 10 percent of Building Property coverage). Detached buildings (other than garages) require a separate Building Property policy.
• Debris removal.

What is insured under Personal Property coverage:

• Personal belongings such as clothing, furniture, and electronic equipment.
• Curtains.
• Portable and window air conditioners.
• Portable microwave ovens and portable dishwashers.
• Carpets not included in building coverage (see Building Property Coverage).
• Clothes washers and dryers.
• Food freezers and the food in them.
• Certain valuable items such as original artwork and furs (up to $2,500).

What is not insured by either Building Property or Personal Property coverage:

• Damage caused by moisture, mildew, or mold that could have been avoided by the property owner.
• Currency, precious metals, and valuable papers such as stock certificates.
• Property and belongings outside of a building such as trees, plants, wells, septic systems, walks, decks, patios, fences, seawalls, hot tubs, and swimming pools.
• Living expenses such as temporary housing.
• Financial losses caused by business interruption or loss of use of insured property.
• Most self-propelled vehicles such as cars, including their parts (see Section IV.5 in your policy).

How Much Coverage I Should Buy?

The highest amount of building coverage you can buy with this insurance is $250,000 and the maximum for contents coverage is $100,000. This means the insurance company won’t pay you more than $250,000 to repair flood damage to your home and no more than $100,000 to repair or replace its contents.

There are two different methods used to determine how much compensation you’ll receive in the event of a flood-related loss:

With Actual Cash Value (ACV), depreciation is factored in. This lowers the payout amount. You receive compensation for the item’s current market value, which is the original cost minus depreciation over time.

For example, a 10-year-old sofa with signs of wear and tear will be valued much lower than when it was brand new. The claim payment will reflect that diminished value.

With Replacement Cost coverage, depreciation is ignored. You simply get paid the cost of replacing the item with a new one, similar in kind and quality. The condition of the original item does not matter.

So for that old, worn sofa, you’d receive the full cost of buying a new sofa today. This typically results in higher claim payouts compared to ACV coverage.

The type of coverage directly impacts what you recoup after a flood loss. It’s important to pick the right option for your needs when purchasing a policy.

In an ideal situation, you would buy building coverage that equals the value of your home. You would also buy contents coverage that equals the value of the things in your home that are covered by the policy. If that is not possible, it would be best to buy enough contents coverage to pay for the value of the most important things you own inside your home.

For example, you find that the most important things you own in your home are valued at $40,000 so you buy flood insurance with contents coverage of $30,000. That means the insurance company is agreeing to pay you as much as $30,000 to repair and replace things that are damaged by a flood.

You might decide that it costs too much for you to buy flood insurance that covers the full value of your home or the most important things you own in it. In that case, you will need to make a personal decision about how much coverage you can afford and need.

Who Is Required to Buy Flood Insurance?

Everyone should buy flood insurance but sometimes you must buy it as a condition of your home loan.

Your mortgage company will require you to buy flood insurance if:

• You are buying a home in an area at high risk for flooding. (This is sometimes called a Special Flood Hazard Area.)
• Your home is in a location that is reclassified as a high-risk flood area.
• Although not federally mandated, some lenders may require flood insurance for homes located in moderate-risk flood areas.

You also must buy flood insurance if you live in a Special Flood Hazard area and:

• There is a flood and you want to receive federal assistance to help you pay for flood damage. To get this disaster assistance while you still live in your current home, the federal government will give you the money only if you also agree to buy flood insurance. You must maintain this insurance for as long as you own the home. If you sell your home, you must let the new owners know that they are required to maintain this flood insurance coverage.
• You received federal disaster assistance after a flood, and you want to be eligible for federal assistance if your home floods again.

When you must buy flood insurance to receive federal disaster assistance, you will have two options:

• Purchase a Group Flood Insurance Policy from FEMA. If eligible, FEMA will provide you a GFIP for free. FEMA then pays the cost of the GFIP policy (currently $2,400) directly to the NFIP from your Individuals and Households Program (IHP) disaster assistance funding. If the cost of a GFIP policy exceeds the remaining amount of IHP Assistance available to you, you will not be eligible for a GFIP. Instead, you will need to purchase an individual policy on your own.
• Purchase an individual flood insurance policy. FEMA calls this “standard flood insurance.” The program aims to subsidize rates to make flood insurance affordable for high-risk properties. One advantage of purchasing an individual policy is that you can pay to receive as much as $100,000 in coverage for damage to your belongings and $250,000 for damage to your home.

How To Buy Flood Insurance

Starting the process for buying an individual/standard flood insurance policy is simple. Here are some steps to follow:

• Determine your flood risk: Use FEMA flood maps to check if your home is in a high-risk flood zone. This will determine if you’re required to have coverage.
• Find an insurance broker: You can buy flood insurance from most insurance providers as well as directly from the National Flood Insurance Program. Get quotes from a few.
  • If you do not have an insurance agent, you can check this list for insurance companies that sell NFIP flood insurance policies.
  • You also can contact the NFIP Referral Call Center at 800-427-4661. Ask the person on the phone to refer you to an agent who sells flood insurance.
• Choose policy coverage: Decide if you want to cover just the structure or also insure your possessions. Select desired coverage limits and deductibles.
• Complete the application: Your broker will help you fill out the paperwork and submit it along with your first premium payment. Be thorough and accurate.
• Await policy issuance: It takes about 30 days for new flood policies to go into effect. Make sure you receive your Declarations Page outlining coverages.
• Implement flood mitigation: Consider steps like elevating utilities, installing flood vents, or using flood-resistant building materials to reduce premiums.
• Review the policy annually: Meet with your insurance broker to ensure adequate coverage as home value increases or changes are made.

Questions to Ask the Insurance Broker

Here are some examples of helpful questions to ask your agent:

• Does my community participate in the National Flood Insurance Program? If yes, you know flood insurance is available in your community.
• What is the level of flood risk for my home? This level of risk will affect the price you pay for insurance.
• Do I qualify for a Preferred Risk Policy? This is a policy for homes in areas at low or moderate risk for flooding. If you qualify, you will be able to buy flood insurance for less money.
• Is FEMA updating the Flood Insurance Rate Map for my area? An update could change the risk level for your area, which affects how much the insurance will cost. If FEMA is updating the map, ask what steps you can take to avoid getting pushed into a higher-cost policy.
• Does my community participate in the National Flood Insurance Program’s Community Rating System? This is important because you might be able to buy cheaper flood insurance if it does.
• Are there any steps I can take to reduce the cost of my flood insurance?
• What will the policy cover? You want to know exactly what things inside your home the insurance will help you repair or replace if a flood damages them.
• What things will not be covered?
• Will the policy pay for damage to items on every floor of my home? Make sure to ask about damage to items in your basement if you have one.
• Will my building coverage be for actual cost value or replacement cost value? You will get paid more for damages with replacement cost value coverage. On the other hand, replacement cost value is not always an option. It also can increase the amount you pay for the insurance.
• Do you charge any agency fees? If so, what are they?
• Are there any other charges? All policies include certain fees and surcharges. Ask so you will not be caught by surprise.
• How can I pay for my policy? Ask about checks, credit cards, money orders, and cash.
• How will I renew my policy? You have to pay the insurer each year to keep your plan. Ask the agent how the insurance company will let you know when it is time to renew and ask what you will have to do in response.