What Is Flood Insurance?

Flood insurance is a type of property insurance that covers a dwelling for losses sustained by water damage, as it specifically relates to flooding. A separate coverage rider is needed to cover sewer backup, if the backup was not caused by the rising floodwaters.

Key Takeaways

  • Any property can be covered by flood insurance, but flood insurance is a required type of coverage when applying for a federally backed mortgage of a property in a designated flood zone.
  •  The National Flood Insurance Program determines policy rates for flood insurance based on a variety of factors, and this price will remain the same across all providers.
  • The Federal Emergency Management Agency maps flood zones across the country and assesses flooding risk and intensity by zone.
  • The pricing of flood insurance policy is based on the zone in which the property is located in as well as other factors including property age and number of floors.
  • Flood zone maps are under continuous review and update to accommodate for changing weather patterns and artificial changes to the environment such as dams and levees, and some zones may be under review and without a definitive flood risk assessment. 

How Flood Insurance Works

A flood insurance policy is different than basic hazard insurance or homeowner’s insurance policy, as it only covers losses that occur due to flooding. Standard homeowner’s insurance policies will cover most other losses as long as they are not related to flooding. Claimable events for homeowner’s insurance include losses sustained by fire, wind damage, and falling trees, to name a few. Unlike a standard hazard policy, flood insurance requires that a policyholder buy separate policies to cover a dwelling and its contents.

Flood insurance policies are available for all homes and commercial properties, not just the ones that are determined to be in the National Flood Insurance Program’s (NFIP) floodplain. However, properties that are located in a flood zone and are mortgaged by a federally backed lender will require adequate flood insurance coverage to receive financing. The NFIP regulates the pricing of flood insurance policies, and the cost will not differ between agents. Factors such as the zone designation, age of the property, and the number of floors can impact premium pricing.

Flood insurance is similar to other property insurance policies, however, it covers only water damage that is flooding related—a risk that standard homeowner’s insurance does not cover.

Special Considerations

In conjunction with the NFIP, the Federal Emergency Management Agency (FEMA) works to keep up to date maps of the flood zones in the U.S., the areas that are most likely to experience flooding. FEMA has worked to update 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 one percent 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 flood water 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 surprised to find themselves located in Zone D, which indicates that a determination has yet to be made for the area. The reviews of flood zones remain ongoing. In 2008, the maps were updated for the first time in 23 years. During that time, it was discovered that many maps were outdated and did not take into consideration man-made changes to the geography such as spillways and levees.

Flood zone determinations can be found by visiting the FEMA website and checking a property address against the flood map service center.