10 Things Every Homeowner Needs to Know About Flood Insurance

Flooding is categorized as the No. 1 natural disaster in the United States, affecting every state. It can devastate entire communities, destroying neighborhoods, displacing families and forcing residents to pick up the pieces in Mother Nature’s wake. It’s no wonder that homeowners question whether flood damage is included in their home insurance policy.

Everyone lives in an area susceptible to flooding. While we may think coastal states, such as Louisiana, Florida and California, are at the greatest risk of floods because of tropical storms and hurricanes, the Federal Emergency Management Agency says that more than 20 percent of all flood claims come from properties outside of high-risk flood zones. Flooding can occur from heavy rains, melting snow, inadequate drainage systems and failed protective devices like dams. And just one inch of water can cause $25,000 worth of damage to your home.

With this risk in mind, here are 10 key things every homeowner needs to know about flood insurance.

1. Standard Home Insurance Policies Don’t Cover Flooding

While water damage, such as that from a frozen pipe, is typically included in your standard home insurance policy, this doesn’t extend to flooding. Flooding coverage isn’t included in the majority of, if not all, conventional home owners insurance policies and needs to be purchased separately.

In some cases, depending on where you live and if your area is categorized as high-risk, your mortgage lender may require you to buy flood insurance as a mandatory measure. Your lender doesn’t want you to lose track of mortgage payments if you’re forced to empty your bank account to cover major repairs from a flood.

And according to FEMA, under federal law, flood insurance also is a must for any federal financial assistance to build in any areas classified as special flood hazard areas.

2. The Federal Government Provides Flood Insurance

The federal government provides flood insurance via the National Flood Insurance Program (NFIP), which is run by FEMA. While flood insurance is underwritten and issued by the government, policies are sold through private insurance agents who act as a liaison between the NFIP and the homeowner. Keep in mind, not all insurance companies offer NFIP insurance, but FEMA provides a list to help you get started.

You can check if your area participates in the NFIP on FEMA’s FloodSmart.gov website, which includes a NFIP Community Status Book, listing flooding risk status reports by state and territory.

As long as your community is listed in one of the 21,000 or so regions covered in the NFIP, you’re eligible for two types of coverage — building property and personal (contents) property. And yes, it’s wise to secure both types.

3. What the NFIP Covers

Building property coverage is like dwelling insurance in a standard home policy, covering the physical structure of your home and its foundation, from electrical and plumbing to furnaces, water heaters and any built-in kitchen appliances.

Building property coverage insures you at your home’s replacement cost value, not its market value, for up to $250,000. Should flooding leave its mark on your home, this insurance will trigger and cover any repairs up to the maximum amount you’re insured for.

Contents insurance comes separately, just like in a standard home policy. It covers the inventory of your personal property for up to $100,000, but factors in depreciation value. If you sunk $5,000 into your home entertainment system 10 years ago and the system is destroyed in a flood, your policy would pay you for what your tech would be worth today to replace. Your clothes, furniture and everyday possessions are accounted for in contents insurance.

Flood insurance even provides $2,500 of coverage for valuables like jewelry, furs and artwork.

4. Private Flood Insurance Is Available, Too

Some — but not many — insurance companies offer private flood insurance, or excess flood protection, that isn’t backed by the government and NFIP. It’s an avenue worth exploring if you need to top off your policy with private insurance (for example, if you’re in a high-risk area and your home is worth more than $250,000). Combining both policies could protect you if the cost of repairs exceeds what’s covered in your NFIP policy so you aren’t stranded and paying out of pocket for the difference.

There is a handful of other great features that make private insurance useful, including extended coverage on your dwellings and contents insurance, faster activation (sometimes as quickly as within a week) and covering costs for short-term housing if you’re forced to relocate. Private insurers also tend to process and file your claims faster.

Do your homework and some number crunching to see if you need private insurance, and pull together some quotes from private insurers. Depending on where you live, some private insurance will be backed by the state through a guaranty fund. This is an extra layer of protection: If your insurer closes shop, your state will pay the coverage promised to you.

The downside? Private flood insurance comes at a much heftier cost than the NFIP, especially if you live in a high-risk area. In some cases, some insurers won’t even cover certain regions due to the risk.

5. What  Flood Insurance Does Not Include

Every policy comes with its fine print and this applies to flood insurance too. Any damage caused by moisture, mildew or mold that could have been avoided by the property owner or which is not attributed to the flood won’t be covered by your flood insurance.

Damage caused by earth movement, even if the earth movement is caused by flooding, is also exempt.

Additional living expenses, such as temporary housing, while your repairs are being made will come out of your own pocket under the standard NFIP policy, along with any property and belongings outside of your insured building. This includes your deck, patio, fencing, seawalls, hot tubs and swimming pools. It’s in these instances that extra insurance may be worthwhile for some households.

6. What Flood Insurance Costs

Just like your conventional home insurance policy, multiple factors are at play in calculating the cost of your flooding policy. In this case, it includes your location and flood zone risk; the design, age and type of structure of your home; and the amount and type of coverage you’re buying.

Homes categorized as high-risk will command more expensive policies — to the tune of about five times compared to regions classified as low-risk. The government suggests that in high-risk areas, there is at least a one-in-four chance of flooding during a 30-year mortgage.

And then there are factors like your deductible — a higher deductible will lower the premium you pay.

Simple upgrades around the home, such as installing flood boards and air brick covers to keep water out of the home, could reduce your risk and your insurance costs.

You can also consider wet floodproofing by constructing or rebuilding the part of your home within base flood elevation with materials that are resistant to floodwaters. Dry floodproofing includes using floodproof sealants and barriers, and adding a drainage system to divert water away from the house.

7. Calculate Your Flood Risk

Misconceptions abound when it comes to assessing flood risk. It’s not just homes in low-lying or coastal areas that are at risk; homes on hills or inclines can be susceptible to flooding and inland states are also vulnerable. Flood insurance can pay regardless of whether there is a major hurricane that warrants a presidential disaster declaration.

Flood history, rainfall, snowfall, topography, wind velocity, tidal surge, flood control measures — these are all key factors used by FEMA to measure flood risk.

The government notes that residents living in and around areas affected by wildfires face an increased risk of flooding  for several years post-wildfire. Flood Smart.gov recommends that residents living in the western United States purchase flood insurance to protect against devastating flooding and the mudflows that can follow.

You can check where your neighborhood falls on the threshold as a flood zone — low-, moderate- or high-risk — via the NFIP’s Flood Insurance Rate Map(FIRM).

The map outlines a community’s base flood elevations, flood zones and floodplain boundaries. Have a close look at the FIRM — or DFIRM, its digital version — to get a reliable indication of what flood zone you’re in. Make sure to make this an annual habit because these maps are constantly updated to match changes in geography, construction, weather and flood management activity.

Have a look at FEMA’s Flood Map Service Center and check your risk by putting in your address.

8. Wind-Driven Rain Is a Different Story, Though

Every insurance policy comes with a unique set of caveats and exclusions. In this case, it’s wind-driven rain damage. FloodSmart.gov notes that when rain enters through a wind-damaged window or door, or seeps in through a hole in the wall or a roof, the NFIP considers the resulting water damage to be windstorm-related and not flood-related.

Things get pretty technical here — FloodSmart.gov says that flood insurance covers “overflow of inland or tidal waters and unusual and rapid accumulation or runoff of surface waters from any source.” But the flood must inundate two or more acres of normally dry land area or two or more properties (one of them should be yours).

Flood insurance includes flood damage caused by hurricanes, rivers and tidal waters as long as the floodwaters covers two acres or two properties, but once wind and hail get involved, it’s your initial homeowners insurance policy that’s put to work.

What caused the flood is important too. For example, damage caused by a sewer backup is only covered by flood insurance if it’s a result of flooding — damage isn’t covered if the sewer backup and subsequent flooding is caused by some other issue.

9. Don’t Take Your Time — It Takes 30 Days to Kick In

Some homeowners may hold off on buying a flood insurance policy, waiting for a rainy day — literally. This isn’t a clever strategy to deploy, though, as in most instances, homeowners face a 30-day waiting period before their policy goes into effect.

Instead of waiting until the rainy season approaches to add a flood insurance policy, your safest bet is to do your research and secure your policy while conditions are dry. This way, it’s available to you and there is no debate about when your policy kicks in if you need to make a claim.

10. Flood Insurance Has Paid Out a lot of Claims

FEMA notes that as of September 2019, 59 insurance companies participated in issuing NFIP policies. As of August 2019, 69 percent of policies covered single-family homes, 20 percent covered condominiums and 5 percent covered businesses and non-residential properties.

Hurricane Katrina in 2005 still held the highest number of NFIP payouts, as of March 2019, totalling at $16.3 billion. Hurricane Harvey in 2017 ranked second, leading to $8.9 billion in NFIP payouts, followed by Superstorm Sandy, in 2012, which resulted in $8.8 billion in payouts for damages.

The average flood insurance claim payment over the past five years has been about $69,000, according to FloodSmart.gov.

If you don’t have flood insurance, the government can step in with federal disaster assistance but only when there is a presidential disaster declaration — and most flood events don’t culminate with this step.

Federal disaster aid is typically a no-interest or low-interest disaster loan that must be repaid, leaving you on the hook for the entire cost of your home’s repair post-flooding. These loans usually aren’t more than $5,000 to $10,000, leaving you with very little financial wiggle room to sort out repairs and a rebuild.

So, when it comes to protecting your home from flooding, particularly if you live in a high-risk area, it might be wise to give some serious thought to a flood insurance policy to give yourself some peace of mind and to potentially save your pocketbook.