6 Things to Know Before You Buy Flood Insurance

Between 1996 and 2019, 99% of counties in the U.S. were affected by a flooding event. But according to a 2020 consumer poll by the Insurance Information Institute (III), only 27% of homeowners have flood insurance. This could be because many homeowners incorrectly believe that their homeowners insurance policy includes flood protection.

In order to protect your property against damage and loss caused by flooding, you need to purchase a separate policy.

In this article, I’ll review six things to know before you buy flood insurance, including:

1. What Is Flood Insurance?
2. What Does Flood Insurance Cover?
3. What Does Flood Insurance Not Cover?
4. What Is The National Flood Insurance Program?
5. Where Can I Buy Flood Insurance?
6. How Much Is Flood Insurance?

What Is Flood Insurance?

A flood insurance policy provides financial compensation for you to rebuild, repair or replace property that has been damaged by floodwaters. I’ve written about events that most standard homeowners insurance policies don’t cover, and water damage from flooding is number one on that list.

To find out your home’s flood risk, you can type your address into the Federal Emergency Management Agency (FEMA)’s Flood Map Service Center. If you live in a high-risk area, you may be required by law to have flood insurance.

According to the U.S. Department of Homeland Security, “ninety percent of natural disasters within the United States involve flooding.” So even if you live in a moderate to low-risk area, your property might still be at risk and it’s worth considering flood insurance for protection.

What Does Flood Insurance Cover?

Flood insurance will only cover damage or loss resulting from a flood, which FEMA defines as:

“A general and temporary condition of partial or complete inundation of two or more acres of normally dry land area or of two or more properties (at least one of which is the policyholder’s property) from:

• Overflow of inland or tidal waters;
• Unusual and rapid accumulation or runoff of surface waters from any source;
• Mudflow (defined as ‘A river of liquid and flowing mud on the surface of normally dry land areas, as when earth is carried by a current of water…’); or
• Collapse or subsidence of land along the shore of a lake or similar body of water as a result of erosion or undermining caused by waves or currents of water exceeding anticipated cyclical levels that result in a flood as defined above.”

For damage caused directly by such events, you’ll have two options for coverage with a flood insurance policy: building coverage and personal contents coverage.

Building coverage is meant to protect your home’s physical structure and foundation, like:

• Your home and its foundation
• Electrical and plumbing systems
• Central air conditioners, water heaters and/or heat pumps
• Built-in appliances, refrigerators and/or cooking ranges
• Permanently installed carpeting, cabinets, paneling, bookcases and/or wallboards
• Detached garages
• Window blinds

Personal contents coverage provides protection for your personal belongings. A few examples of personal contents that are typically covered include:

• Furniture
• Clothing
• Electronic equipment
• Washers and dryers
• Curtains
• Food freezers (including any food in them)

Like standard homeowners insurance policies, flood insurance policies have deductibles and coverage limits that will vary depending on your insurer and policy.

Also, flood policies may include replacement cost coverage or actual cash value protection for your home and belongings.

What Does Flood Insurance Not Cover?

Even when damage or loss to your property are caused by flooding, there are certain items that a flood insurance policy won’t cover. A few things that are not usually covered by either building or personal contents coverage include:

• Cash
• Stock certificates
• Bearer bonds
• Precious metals
• Cars and their parts
• Decks and patios
• Fences
• Septic systems
• Pools and hot tubs
• Walkways
• Plants
• Mold, mildew and/or moisture damage after a flood
• Loss of income
• Living expenses (including temporary housing)

Also, it’s important to remember that a flood insurance policy will not protect your home or belongings from any water damage that is not caused by floodwater.

For example, FEMA says that “Rain entering through wind-damaged windows, doors, holes in walls or the roof resulting in standing water or puddles is considered windstorm rather than flood damage.”

In this example, your homeowners insurance policy might help since most standard policies include protection against wind damage. Check out what’s covered by a standard homeowners insurance policy here.

What Is The National Flood Insurance Program?

The National Flood Insurance Program (NFIP) is “the primary source of flood insurance coverage” for homes in the United States. The program was established by the National Flood Insurance Act of 1968 to help property owners manage the financial risk of flooding and reduce the impact of floods across the country.

NFIP policies can either be purchased through NFIP Direct (which means your policy would be managed by FEMA) or through one of the many private insurance companies that sell and service NFIP policies.

You can read what companies offer NFIP policies on FEMA’s Floodsmart website here. Currently, more than 24,000 communities across the country participate in the NFIP.

Although most flood insurance policies are issued through the NFIP, non-NFIP policies through private flood insurance companies are becoming more popular.

Where Can I Buy Flood Insurance?

There are two ways you can get flood insurance: through the NFIP or through the private market. What’s the difference between National Flood Insurance Program insurance and private flood insurance?

NFIP policies are written by FEMA and sold by private insurance companies. This means you might be able to purchase a NFIP flood insurance policy through the same company that underwrites your homeowners insurance. But since NFIP policies are federally managed, your policy would be backed by the federal government. The NFIP receives annual funding from Congress and can borrow funds from the U.S. Treasury as needed to make sure insurance claims are paid.

Private flood insurance policies are written and funded by private companies. Although private insurance isn’t backed by federal funds, these policies may offer more comprehensive options and higher coverage limits against flood damage than NFIP policies.

To buy flood insurance, you can start by calling your existing home insurer to see what options are available.

If your current insurer doesn’t sell flood insurance, the NFIP insurance provider locator is a great tool to find companies offering coverage near you. The tool lets you choose your state to see what companies are available in your area. You can also call the NFIP at 877-336-2627 for more help finding an agent or insurance provider.

It’s estimated that 95% of flood insurance policies are purchased through the NFIP, but options for private flood insurance may also be available depending on where you live. The III lists the following companies as the top 10 writers of private flood insurance in 2022:

1. American International Group (AIG)
2. Zurich Insurance Group
3. Assurant Inc.
4. AXA
5. Berkshire Hathaway Inc.
6. Swiss Re Ltd.
7. Sompo
8. Liberty Mutual
9. Chubb
10. Allstate Corp.

If you’re interested in flood insurance, don’t wait to buy it. Flood insurance typically has a waiting period between the date you purchase a policy and when it becomes effective. With the NFIP, for example, policies typically don’t become effective until 30 days after purchase. If you’re waiting for a storm to show up in your city before you get coverage, it’s likely going to be too late.

How Much Is Flood Insurance?

According to FEMA, the average flood insurance policy costs around $700 annually. But just like there are many factors that impact how much your homeowners insurance costs, your rate for flood insurance also depends on many things, including:

• Where you live/your flood risk
• Your home’s age and type of construction
• Coverages selected (building, contents or both)
• Coverage limits and deductible
• Property additions or extensions
• Number of floors on property
• Property occupancy
• Your insurance company (if you have private insurance)

We usually recommend shopping around to get the best deal for your insurance, but you don’t need to shop around if you’re getting an NFIP policy. That’s because FEMA says, “NFIP flood insurance rates do not differ from company to company or agent to agent.”

Instead, FEMA updates flood insurance rates annually. To give you an idea of what you might pay for NFIP, I reviewed 2021 base premium rates on FEMA’s rate tables. The following are some of the base rates for different levels of building and contents coverage on properties with and without basements:

Building and Personal Contents Coverage With $150,000 Building Coverage (on Property With Basement or Enclosure)
+ $8,000 contents coverage	+ $12,000 contents coverage	+ $20,000 contents coverage	+ $30,000 contents coverage	+ $40,000 contents coverage	+ $50,000 contents coverage
$308	$326	$344	$361	$376	$392

Building and Personal Contents Coverage With $150,000 Building Coverage (on Property Without Basement or Enclosure)
+ $8,000 contents coverage	+ $12,000 contents coverage	+ $20,000 contents coverage	+ $30,000 contents coverage	+ $40,000 contents coverage	+ $50,000 contents coverage
$283	$298	$312	$325	$338	$351

Building and Personal Contents Coverage With $250,000 Building Coverage (on Property With Basement or Enclosure)
+ $8,000 contents coverage	+ $12,000 contents coverage	+ $20,000 contents coverage	+ $30,000 contents coverage	+ $40,000 contents coverage	+ $50,000 contents coverage
$372	$391	$408	$426	$441	$455

Building and Personal Contents Coverage With $250,000 Building Coverage (on Property Without Basement or Enclosure)
+ $8,000 contents coverage	+ $12,000 contents coverage	+ $20,000 contents coverage	+ $30,000 contents coverage	+ $40,000 contents coverage	+ $50,000 contents coverage
$339	$354	$370	$383	$395	$408

The base premium is just a starting point though. The NFIP adds annual fees and surcharges to premiums, so your final bill will be higher. If you don’t live in a high-risk flood area, you may qualify for lower rates through what’s called a Preferred Risk Policy.

Final Thoughts

In the last 30 years, only 1% of counties across the U.S. haven’t had a flooding event. With this in mind, having some level of flood insurance is a good idea regardless of where you live.

FEMA reports that, “about 25 percent of all flood insurance claims come from areas with low-to-moderate flood risk,” and “just one inch of water can cause $25,000 of damage to your home.”

Without flood insurance, you’ll have to pay for any unexpected flood-related damage to your property out-of-pocket or with limited disaster assistance from FEMA. This can include loans that you’ll have to pay back with interest, or typically around $5,000 in grants per household. For comparison, the average NFIP flood insurance claim is more than $36,000, so having flood insurance makes a big difference.

And if you don’t have a policy yet, it’s best to buy coverage sooner than later since flood insurance policies typically have waiting periods from the date of purchase before becoming active. You don’t want to find out after a flood that you don’t have coverage or that your new policy isn’t effective yet.