Guide to Flood Insurance
For as much as you hear about flooding happening around the country, you may think it may never happen to you personally. But a flood can happen to anyone, regardless of the flood risk in the area you live. According to FEMA, 99% of counties in America were affected by flooding between 1996 and 2019.
Flooding is a very common occurrence that can be insanely detrimental to victims. Even if you haven’t encountered one, it is highly recommended that you look into obtaining a flood insurance policy. Flood insurance can help to rebuild your home and replace your personal belongings. This piece serves as your information guide to what flood insurance covers, how to obtain a policy, terms of said insurance policy, which will be best for you, and how much you should set aside to buy. A flood can happen in an instant and have a lifelong effect on you and your family. It is best to always be prepared.
What is Flood Insurance?
Flood insurance is an insurance policy that protects your house and personal property in the event of flooding. Floods can cause substantial damage to your community, and having a flood insurance policy can help assist you with recovery efforts. Some instances where anyone may be susceptible to flooding are from overflowing rivers nearby or heavy rain from a hurricane. Generally, people in designated flood zones are the ones that obtain a flood insurance policy, but anyone can get one. It is recommended that homeowners or renters have some level of flood insurance coverage. We have seen time and time again in America that water can wreak absolute havoc anywhere.
What does insurance consider to be a “flood”?
A flood is typically described to be water overflowing onto an area that is usually dry. For example, roads are generally a place we expect to be dry. But after a torrential rain pour, the water can build up, creating a flood. Instances like that can happen pretty much anywhere, and that is when your flood insurance policy can come into play. But just because you have water damage does not always mean your policy will approve the claim. There are some exclusions to the types of damage that flood policies will cover. More information on that will be explored further in this piece. For now, you at least have some idea of what flood insurance is and what insurers consider to be a flood.
Types of Flood Insurance
Flood insurance differs slightly from other types of insurance when it comes to obtaining coverage. There are two different routes you can take depending on where you live. The options are going through a private insurance company or getting coverage from a government-backed program known as the National Flood Insurance Program (NFIP). Explored below is further information on each of these insurance options.
National Flood Insurance Program (NFIP)
The National Flood Insurance Program (NFIP) is a federal program through FEMA which offers flood insurance to homes. NFIP is offered to residents of over 20,000 different communities, and anyone in the designated areas can get insurance regardless of their flood risk. You can get this government-funded insurance through insurance companies, most likely even from a company you already have some type of insurance with. But if needed, coverage can also be bought directly from the NFIP if you are unable to find an insurance company. NFIP offers up to $250,000 in dwelling coverage and $100,000 in contents coverage. Commercial properties can receive even more.
Private Insurance Policy
If the federal route is not for you, or you do not live in one of the designated NFIP communities, you may want to look into getting flood insurance from a private company. These insurers do not receive any federal help and instead cover customers through funds obtained from monthly premiums. Under a private insurance plan, you typically will have more variety when it comes to coverage options and higher policy limits. Just keep in mind that if you are choosing to opt out of getting an NFIP policy, private insurance can reject you. NFIP cannot impose the same selectivity, which means if you are in a high-flood area, you may be better looking into the federal plan. It is all really just about what is offered to you and your living situation. You must decide what you believe to be best for your property.
What is Covered Under a Flood Insurance Policy?
Explored below is a look into what NFIP flood insurance policies come with in terms of coverage. Private insurance companies have more flexibility when it comes to coverage, but that will be explained in a further section. What is outlined here is what you will generally find offered by any flood insurance policy. It is rare to find one that goes beyond these categories. There are two groups coverage can fall under, dwelling and content.
Dwelling coverage refers to the structure of your home along with build-in appliances and any attached structure (ex., A garage). This coverage is the main component of your policy as it is not optional. You must have dwelling coverage in order to actually have flood insurance.
While protecting your home’s structure is mandatory, buying coverage for your belongings is not. Content coverage works to protect your personal items, such as clothing and furniture, in the event of a flood. This coverage is an optional part of your flood insurance policy. NFIP allows you to purchase a plan that only protects your dwelling.
Coverage Under NFIP vs. Private Insurance
While what has been outlined are the standard coverage categories for flood insurance policies, what NFIP offers, and what private insurances offer may differ. Private insurance companies do not receive any government funding. Due to this, you could have the option to buy different coverages or higher limits if going with independent insurance. Just make sure you thoroughly review and compare rates before going outside the FEMA insurance plan if you are faced with the option. Some people may not have this choice, and if that is the case, you will have to accept what the government plans are offering.
What Does Flood Insurance Not Cover?
Like with any other type of insurance you obtain, some events are not covered by flood insurance. The exclusions can range from non-rain-related water damage to what happens to your car during a flood. Outlined below are common exclusions you may encounter on your flood insurance plan.
If damage from a flood was preventable, then your insurance will most likely not offer coverage for it. Some damage included under is moisture, mold, or mildew. If these infestations could have been avoided by either fixing something or having work done on your home, then the insurance company may not offer you assistance.
Any property you keep outside will not be covered in the event of a flood. This refers to outdoor items such as patios and pools. Any decks you have on your home also fall under these outlined exclusions. Also, do not be surprised if insurance will not cover your landscaping. Speaking of outdoor belongings, any damage done to your yard and plants is not covered under your policy in the event of a flood.
Additional Living Expenses
It is not uncommon for you to find yourself displaced after a flood. This happens to thousands of people following the landfall of a hurricane. But, surprisingly, displacement costs will not be covered under your flood insurance. If you have to stay at a hotel or rent an apartment, your insurance will not reimburse you. This also goes for any meals or other necessities you need during this time.
Even if your vehicle is in your attached garage, it will not be considered a covered belonging after a flood by your insurance plan. If you are worried about a flood damaging your car, it would be best to add comprehensive coverage to your auto insurance policy. If applicable, you may be able to find some private insurance companies that will offer car protection in the event of a flood.
Specific Water Damage
This may be assumed after reviewing the definition the insurance industry has for flooding, but water damage from a faulty sump pump or burst pipe will not be covered by flood insurance. If you are experiencing such damage, you will want to turn to your home insurance and see if you are covered. Despite the fact it is technically a flood, this type of insurance will not be of any assistance.
Average Cost For Flood Insurance
According to FEMA, in 2019, the average flood insurance premium cost around $700 a year. That’s about $58 per month for coverage. However, insurance rates vary for everyone. Each applicant has a different living situation, meaning your own rate can either be above or below the average. FEMA is also planning to adjust the pricing methodology for their insurance program starting in October of this year. Through their new algorithm, they hope to take into account more variables when deciding rates. Still, it is a good idea to keep the average rates in mind as you begin shopping for insurance so you have some sort of idea for how much flood insurance will take up in your budget.
What Determines Flood Insurance Premiums?
While general costs for flood insurance are very helpful to understand when beginning your hunt, keep in mind that your quote could look gravely different than the average rate. The reason for this stems from a variety of factors. Insurance is very personalized, and certain aspects of your life will determine how much you pay annually for coverage. Outlined below is a look into what is taken into consideration when calculating your flood insurance rates.
Arguably the most significant factor when it comes to flood insurance rates is the level of flood risk your home is under. This is typically analyzed by observing previous flooding occurrences in that area. If where you live has to deal with floods every time it rains, then your premiums will be quite high. Sometimes this can be due to nearby waterways, but that is not always the case. Many places in America naturally see floods more than others, regardless of their proximity to bodies of water. Being located in any type of floodplain will result in higher insurance premiums as you are more likely to make frequent claims. Living outside of such an area will result in lower premiums.
Age of Home And Construction
Sort of like home insurance, how old your house is and how it was built will have a direct impact on your flood insurance rates. Older homes are going to cost you more as they lack modern structures. Materials could be different than the ones used to build modern homes, along with the fact they lack updated building techniques. Due to factors like these, your old home is more prone to flooding, leaving the insurance company no choice but to raise your rates. Modern homes usually take flooding into account and add specific features to mitigate risks.
What your insurance deductible is will have an effect on your monthly rates. The higher you set your deductible, the less your rates will be. This applies to any type of insurance policy. The deductible amount you set is what you agree to pay out of pocket in the event of an insurance claim. For example, if you have $1,500 in damage and your deductible is $500, your insurance company will pay for $1,000. You are responsible for the rest. By offering to pay more, the insurance company is responsible for less, which means lower rates.
Insurance Policy Type
As previously outlined, you may have the choice between insurance policies for flood protection. If applicable, you could be part of the federal insurance program, or you may opt for going through a private insurance company. Both of them come with their own costs and benefits. The coverage level you choose can also increase rates. While this is not a personal factor that goes into your annual rates, it is best to keep in mind what each policy comes with.
If you do not like the insurance plans FEMA offers or do not qualify for such a policy; you may end up getting an insurance policy through a private company. It is always wise to have some level of flood protection even if you are not in a high-risk area. With how chaotic storms are getting these days, you never know when a flood will sweep through your town. But shopping for flood insurance comes with an abundance of research to find the best policy with the most affordable rate. Each insurance company will have different algorithms for deciding its costs. Analyze flood protection policies and costs to see which plan makes sense for your living situation.
How to Get Flood Insurance Policy Discounts
Now that you have an understanding of both the average cost of flood insurance and the factors that will determine your rates, you are probably curious about what you can do to get even lower rates. A glimpse into ways to get a discount on your flood insurance plan is explored below.
Elevating Your Home
While this may seem like a lot of work, it can save you on insurance rates. Putting your house on stilts allows for flooding water to pass under it. This protects your home and valuables. When doing this, you should also elevate your utilities like heating systems and electrical panels. This prevents them from getting damaged during a flood which means you will not have to file an insurance claim. A good rule of thumb is the less an insurance company thinks you will file a claim; the lower your rates will be. Elevating homes is a fairly common practice, mostly in coastal towns, but doing so anywhere could reduce your annual rate.
Install Flood Openings
The FEMA insurance program requires new homes with basements in high-risk areas to include flood openings. Flood openings are essentially little vents installed on the lower level of your home that allow for water to pass through them. If you don’t have any, adding them can be beneficial for your insurance premiums. If you already have flood openings installed, do your best to maintain them to prevent flood damage within your home.
Increase Your Insurance Deductibles
This route can make your premiums more appealing but can land you in some financial issues if you cannot actually pay your deductible when you file a claim. Only raise your deductibles to an amount you are comfortable with actually paying. You always want the best monthly rates you can find, but if a flood causes substantial damage to your home, you need to be able to pay what you promised.
Obviously, everyone wants the best coverage at the best price. If you have the option, you may want to shop around and compare different flood insurance policies from different providers. During this process, you will want to pull a variety of information from the insurance companies, including quotes and their flood policy. This is free to do and does not hinder your ability to obtain a policy. You are simply looking to compare rates, and it can be very useful. While doing so, make sure to also compare flood policies line by line in order to see what may be offered. You want affordable insurance, but you also want a strong plan. This may be more commonly done when going the private insurance route for coverage. If you want an NFIP policy, make sure you research the insurance company providing you with the policy. This will be explained more, but you most likely can choose what company you receive the government insurance plan from. Do thorough research and refrain from partnering with an insurance company solely based on their rates.
Eliminate Your Basement
On the surface, removing your basement seems like a very drastic step to take for lower insurance rates, but it could actually be reasonable depending on your living situation. Basements will always be at high risk for a flood, whether you are in a flood zone or not. They’re below ground level, which can mean real trouble. Filling in your basement means insurance companies will see your home as less of a risk, which lowers your annual rates. You may even be able to take it one step further and search for a home without a basement if this is of great concern to you.
Do You Need Flood Insurance?
Legally, no. Unlike auto insurance, there is no law stating you must carry a minimum amount of flood insurance in order to own a home or rent. With that being said, there are some instances where you could be required to get one. This generally relates to mortgage loans or home equities. But, usually, obtaining a flood insurance policy is up to each homeowner or renter. There are some cases where you may want to seriously consider it. Explored below are some of the instances where you may be required to obtain a policy, or you should begin looking into one.
A government-backed mortgage could require flood coverage.
If you are a homeowner, there is a solid chance that you have a mortgage through a mortgage company. If your home has been identified as a high risk for a flood due to its location, your mortgage company will most likely require you to carry coverage. This may be one of the few times where carrying flood insurance is mandatory. As discussed previously, flood insurance has no state-mandated minimums. It is generally up to each person, but in the case of mortgage loans, it is not. Still, it can be good that insurance companies require it as you never know when you will need to file a serious claim.
You have a home equity loan.
If you have any home equity loans, the lender typically requires you to have adequate flood insurance coverage. This can be especially true if your home is in a high-risk flood area. When you take out such loans, the lender may even require you to buy more than the minimum insurance in order to assure that your home is actually protected. While this type of insurance is not legally mandatory, the situation regarding your home and any loans you have can make things a bit more complicated.
Federal disaster aid can be unreliable.
If you do not have flood insurance, you could be stuck waiting around for disaster aid after a severe flood. But you may be waiting for something that will never come. Federal disaster aid can be very unreliable when administered, and it may not even be offered after every flood or other disaster. And even if you are able to apply for it, funds may not come for months after the initial damage. This leaves you in a vulnerable, frustrating situation. Flood victims without insurance sometimes rely on funding from the Disaster Loan Program. But the money comes as the name suggests: loans. The aid includes all the features of other loans, like interest rates. Lacking flood insurance gives you such limited options if you do not have the means to pay for the damage yourself. With flood insurance, there is at least some reassurance you will have some coverage, assuming you stay up-to-date on payments.
Your home is at high risk for flooding.
FEMA has an online tool that allows you to see the flood risk levels in your area. If you find yourself in a high-risk flood zone, considering flood insurance would not be the worst thing. Due to being located in a flood zone, you are most likely able to get a policy from NFIP, as has been explored in a previous section. This federal program will offer you flood insurance regardless of your flood risk status. A flood can be severely draining to deal with. Having some insurance in your corner can ease a bit of the stress.
Flood damage can be detrimental to your finances.
Unless you are dealing with auto insurance, you could choose to be completely self-insured. It is certainly pricey, but if you have the means, it may be less of a headache than going through insurance companies. However, many people do not have the luxury to even consider foregoing insurance of any kind. For those reasons and others outlined, it would be very wise to get flood insurance as a way to have some assistance after a flood. Instead of having to pay to replace everything, you could just pay a monthly premium and rely on your policy in the time that calls for it. But it is also important to make sure you have enough insurance to cover all areas of your property because you do not want to be underinsured. Your finances could seriously take a blow if you do not have the proper insurance.
Wait, Doesn’t Homeowners Insurance Cover All This?
Amazingly, no. Home insurance will not cover damage done by natural-occurring floods like those after a storm. If your basement floods due to a plumbing problem or water leak, then that is where home insurance can come in to help. But other than that, you will need this special policy on top of home insurance in order to be protected from a flood. It’s best to carry both types of insurance even if you do not live in a high-risk flood zone. If a storm is strong enough, flooding can occur anywhere.
How Much Flood Coverage Should You Get?
When it comes to figuring the best amount of flood insurance for you, start by deciding on what plan you would like. Terms and coverage for flood protection policies vary. Settling on the government-backed program can have different coverage levels than a private insurance company. But, in general, whichever route you choose, you will have to figure out two things: the cost to rebuild your home and the total value of your personal property.
When it comes to deciding the actual cash value of your home, you need to figure in details, such as the size of your house, the types of material use, and the cost of labor it would take to actually build the home. This may not be too unlike what you should be figuring when it comes to purchasing home insurance. The company you are already under may even be able to assist you with an estimate.
Keep in mind that if you believe the government insurance program is the best for you, then FEMA offers two coverage options for structures. These relate to how much you will actually receive upon filing a claim for flood damage. The first one is under replacement cost. Replacement cost will pay the cost to get your damaged home new parts. The second coverage is actual cash value (ACV). Under ACV, your policy will pay the value of your building at the time of the damage. This means if you paid $50 for carpet a decade ago and now it is only worth $25, FEMA’s insurance will pay out the latter amount.
After deciding the cost to rebuild your home, you have to turn your attention to your personal belongings and their value. Calculate the cost of your personal property by taking an inventory. This can include things such as furniture and clothing. As mentioned before, this will not include outdoor items like lawn chairs.
Also, be cautious of very valuable items. Some flood policies will not include luxury items such as fine art or jewelry. You should purchase a separate insurance plan to cover such pricey items. Under FEMA’s insurance, the payout for your damaged belongings will be under ACV. This could leave you with some gaps to fill if you can only repurchase your items brand-new. Make sure you keep track of your belongings and their value.
Remember, what you receive back for them after a claim can fluctuate as years go on. If you need extra assistance, some insurance companies offer an online calculator to help give you an estimate of how much insurance coverage you need.
When to Purchase Flood Coverage
Truly, it is most likely best you get a flood insurance plan right around the time you are getting renters or home insurance for a new place. Typically, you would do this after you move in somewhere. You should never wait until you hear that a storm is coming in to start looking for insurance. Nature can be unpredictable, and you may actually end up without insurance when the damage hits despite your application already being submitted. FEMA and private insurance have a set way of administering flood insurance.
Getting an Insurance Policy Isn’t Instant.
After applying for flood insurance, there is a waiting period. This is not too uncommon with insurance in general. For example, after applying for a life insurance policy, you will not be covered until your first payment. When it comes to flood insurance, the NFIP and private insurance companies take time to gather information and evaluate your home and living situation. If applying for an NFIP plan, the wait time is typically 30 days. But there are some exceptions to the rules. If, for example, your NFIP plan is directly related to your mortgage loans, the wait time is waived. When it comes to private insurance, the waiting period is usually shorter. Sometimes it may take insurance companies 10-15 days to respond to your application. Even with this shorter wait time, insurance is usually not immediate. For this reason, it is very smart to try to get a flood policy before a serious storm hits. Sometimes that is not always possible, and flooding can creep up unexpectedly. But do not wait until you have an impending flood warning to start hunting for insurance.
How to Get Flood Insurance
As has been discussed multiple times in this piece, there are a couple of routes you can take when it comes to getting a flood insurance policy. Maybe you live in a high-risk area and can easily access FEMA insurance. Or perhaps you like the flexibility private insurance companies can offer. Whichever path you choose, you still have to work to actually get a policy under your name. Explored below are some general instructions to obtaining whichever insurance policy you desire.
Being Part of NFIP Community
An NFIP policy is available through over 50 different insurance companies across the country. To obtain coverage through the federal program, you have to check if your community is eligible. This probably will not be an issue; there are over 20,000 communities in America that are covered by FEMA’s insurance. Living in one of these communities essentially guarantees you will have some level of flood insurance. To go about actually accessing coverage, you will need to find an insurance company that offers an NFIP policy. Insurance agents or brokers may be able to assist you in your hunt. After you settle on a company you like, you can apply for government-backed insurance and will have to wait the 30-day mandatory waiting period unless you fall under one of the exclusions.
Buying Private Insurance
While FEMA’s insurance is available in many areas, you may be in a neighborhood that is not covered by such a policy. However, this does not mean you shouldn’t be thinking about flood insurance. As stressed many times in this piece, a devastating flood can happen anywhere. Labeled flood zones just mean that it happens there easily or more often. Without FEMA insurance as an option, you are left hunting for the best private insurance to cover you after a flood.
To begin this process, start by accumulating a list of insurance companies in the area that offer flood insurance. This may take a little hunting as private flood insurance coverage is not very popular. It has become more accessible over time but could take you more effort than someone living in an NFIP community.
Once you have gotten an idea of what insurance company you prefer, begin pulling quotes from each one. Compare and contrast both their rates and flood policies. This can be a delicate balance. While you never want to break the bank paying for insurance, you certainly do not want to be underinsured. You also have to make sure what you are paying for is appropriate coverage.
After applying, you typically will have to wait a few weeks before getting approved for coverage. If you are opting to get private insurance in a high-risk area, some companies may ask you to prove your home is elevated via an elevation certification. This partially helps them establish your annual rates. As has been previously discussed, an elevated home can also be a good way to lower your insurance rates. At the very least, your belongings are protected above a flood line.
What’s The Best Insurance Policy For You?
When it comes to deciding what the best insurance policy is for you, you need to take a long look at your living situation. Start by looking at the flood risk in your area. As previously mentioned, FEMA has a helpful guide to understand your area and potential risk.
Once you have examined where you stand with flooding, look into the flood insurance options offered in the area. If you are in a community covered by the FEMA insurance program, it may be wise to go with them as you cannot be turned away, and their coverage is a bit expansive. But maybe they are not the best route for you, or your community does not qualify for federal support. If that is the case, a private insurance company will most likely be able to help. Confident you have decided on the best insurance policy for you, begin calculating the cost of your home and personal belongings.
Keep in mind the limits with NFIP when it comes to how much you receive after a claim. Then you can begin pulling quotes from companies. Some insurance sites have an online calculator to assist you with estimating your potential rates. The insurance process does sound like a grueling one, but it may be worth it at the end of the day. You should never dismiss or put off obtaining such insurance. You never know what Mother Nature will bring, and the last thing you want is to have a damaged home with no means to repair it.