What Is Flood Insurance?
Flood insurance is a type of property insurance that covers a dwelling for losses sustained by water damage specifically due to flooding. Floods may be caused by heavy or prolonged rain, melting snow, coastal storm surges, blocked storm drainage systems, or levee dam failure.
In many places, a flood is considered a vis major event, and the damage or destruction it causes are uncovered if you do not get supplemental insurance.
- Flood insurance is a type of property insurance that covers a dwelling for losses due to flooding.
- Flood insurance policies are available for all residential and commercial properties.
- The federal National Flood Insurance Program (NFIP) offers flood insurance to homeowners in participating communities with policies are offered through private insurers.
- The pricing of flood insurance policy is based on the NFIP-designated flood zone in which the property is located, as well as the property age, elevation, and the number of floors.
- The average annual cost of flood insurance is $700, but costs vary by location, type and size of the structure, and other factors.
How Flood Insurance Works
A type of catastrophe insurance, a flood insurance policy is different than the basic hazard insurance coverage contained in a homeowners insurance policy. Flood insurance policies are available for all homes and commercial properties.
Standard homeowners insurance covers interior water damage, due to factors like storms or burst pipes. However, it generally doesn't cover destruction or damage caused by floodwaters. Property owners who live in an area prone to floods usually need to get special insurance.
Flood insurance basically works like other insurance products. The insured (the property owner) pays an annual premium based on the property's flood risk and the deductible they choose.
If the property or its contents are damaged or destroyed by flooding caused by an external event like rain, snow, storms, collapsed or failed infrastructure, the homeowner is covered. They receive cash for the amount of money required to repair the damage and/or rebuild the structure, up to the policy limit.
Unlike a standard homeowners policy, flood insurance requires that a policyholder buy separate policies to cover a dwelling and its contents. A separate coverage rider is needed to cover sewer backup if the backup was not caused by the rising floodwaters.
Flood insurance is required coverage for a federally backed mortgage of a property in a federally designated flood zone (
an area at high risk of flooding due to heavy rains, flash flooding, and mudflows).
The National Flood Insurance Program
The National Flood Insurance Program (NFIP), managed by the Federal Emergency Management Agency (FEMA), offers flood insurance to homeowners in participating communities and those in the NFIP-designated floodplains. The actual insurance policies are issued by private insurance companies, not by the NFIP or FEMA.
The Federal Emergency Management Agency (FEMA) updates maps of the flood zones in the U.S., the areas that are most likely to experience flooding. FEMA updates the zones as they change along with new and intensifying weather patterns. The zones are broken up into subsections for rating purposes. Properties that are located in zones B, C, and X run a moderate to low risk for flooding. Low risk means less than a 1% chance of annual flooding.
Properties that are located in zones designated with an A are considered high risk. They are broken down further, with descriptions of potential floodwater heights and estimated rates of occurrence over the course of a 30-year-mortgage. Properties that receive a V designation are similar to the ones located in zone A. These are high-risk areas that are positioned along the coast.
Some homeowners may be in Zone D, which indicates that a determination has yet to be made for the area. Flood zone maps are under continuous review to accommodate changing weather patterns and artificial changes to the environment such as dams and levees.
You can find your flood zone by visiting Floodsmart.gov and checking a property address against the flood map service center.
The Cost of Flood Insurance
The NFIP regulates the pricing of flood insurance policies, and the cost will not differ between issuers. If you live in a flood zone, or an NFIP-participating community, the NFIP can help you find an insurance agent.
To determine your policy cost your agent will look at factors like the location and structure of your home, including how near it is to a body of water, and its elevation. Costs will also be affected by the type of coverage you have selected, such as replacement cost value versus actual cost value.
Factors such as the flood zone designation, age of the property, and the number of floors can all impact pricing. A Preferred Risk Policy (a lower-cost flood insurance policy) provides both building and contents coverage for properties in moderate-to-low risk areas for one price. Certain communities that have implemented flooding safeguards qualify for discounts under the NFIP, too. As a result, annual premiums can vary widely.
The average annual cost of a National Flood Insurance Program policy
With NFIP policies, the maximum for residential structures is $250,000 in building coverage and $100,000 in contents coverage. The maximum for businesses is $500,000 in building coverage and $500,000 in contents coverage.
Of course, you can always seek out coverage on your own, especially if you want to insure your property for a larger amount (rates for additional coverage won't be regulated, however). Often, starting with the company issuing your regular homeowners policy is a good idea.
When Is Flood Insurance Required?
Flood insurance is not required by federal law, however a mortgage provider may require it depending on where the property is located.
What is the National Flood Insurance Program (NFIP)?
The National Flood Insurance Program (NFIP), managed by the Federal Emergency Management Agency, is federally backed flood insurance available to participating communities as an alternative to disaster assistance. The policies are issued by private insurers.
Is Flood Damage Covered by Home Insurance Policies?
Flood damage is not typically covered by standard home insurance companies. Flood insurance is a separate policy that covered damage to the property and contents.
The Bottom Line
Whether or not flood insurance is a good idea for you will depend on a number of factors, mainly whether your property is in an area that is at high risk of flooding. However, floods can occur any where. You don't need to live near water for your home to be flooded, such as because of storms, melting snow, or backed up drainage systems. Keep in mind that if you do want to protect yourself from the costs of flood damage, you'll need to buy a separate policy in addition to your homeowners insurance.