Everything you need to know about flood insurance: Cost, what it covers and what it doesn’t

Everything you need to know about flood insurance: Cost, what it covers and what it doesn’t

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We’re in the thick of flood season — and though extreme weather in Europe and Asia may be grabbing most of the headlines, climate change is bringing heavier rain to new regions. Flooding is already the most common natural disaster in the US, with $20 billion of damage expected in 2021, according to New York-based flood research non-profit First Street Foundation.

As weather patterns continue to change, it’s clear that no one should consider themselves untouchable. According to the Federal Emergency Management Agency, 99% of US counties have been affected by flooding in the past 25 years, and more than 40% of federal flood insurance claims between 2014 and 2018 were filed outside of high-risk flood zones. In fact, in 2019 annual costs for flood insurance through the National Flood Insurance Program averaged $700, while claims payouts averaged $52,000. 

Flooding can wreak havoc on your home — and wallet. And most standard homeowners insurance policies do not include coverage for floods. But if you are in an area prone to hurricanes or floods, you can protect yourself with a flood insurance policy.

With policies typically taking 30 days to kick in and prices for homeowners in high-risk areas expected to rise in October 2021, now could be the best time to get coverage for a low rate. Read on to learn everything you need to know about flood insurance, including what it covers and how much it costs. 

What is flood insurance?

Flooding may result from heavy rains, snowmelt and hurricanes — but it also comes from failed dams and storm drain blockages. Flood insurance supplements your basic home insurance policy — which usually doesn’t cover flooding — with coverage for your home’s structure and contents if they’re damaged by floodwaters.

Although most homeowners obtain flood insurance through the National Flood Insurance Program, private flood insurance policies are becoming increasingly popular options because they offer broader coverage at lower prices. The pricing disparity has grown more pronounced since the NFIP unveiled its new rating model, which could cause major rate increases across the country.

Every home in the country is assigned a flood zone, divided between low-, moderate- and high-risk areas. You can find out your risk level on the FEMA flood zone map (high-risk zones are designated by the letters A or V). If you own a home in a high-risk area with a government-backed home loan (FHA, USDA or VA), your lender will require you to get both flood and homeowners’ insurance. Flood insurance is optional for homeowners and renters in low- and moderate-risk areas, however, or homeowners in high-risk areas with conventional mortgages.

How flood insurance works

Flood insurance works similarly to other insurance policies. You pay a monthly or annual premium; if a flood occurs and your property is damaged, you receive cash to repair the damages (according to the specifics of your policy terms).

NFIP coverage is an annual policy that automatically renews each year. Limits are currently capped at $250,000 for the structure and $100,000 for “contents coverage,” which applies to what’s inside your home. Private flood insurance may offer different policy lengths and higher limits — up to $500,000 for the structure and $250,000 for contents. Higher deductibles come with lower premiums but may require a higher out-of-pocket cost if you file a claim.

There is typically a 30-day waiting period from the time you buy a flood policy until it becomes effective. This waiting period can be waived if:

  • You’re buying flood insurance when altering your home loan
  • You buy flood insurance after a wildfire has caused flooding on burned federal land, and the policy is bought 60 days or less from the wildfire containment date
  • Your home has been newly mapped into a high-risk flood zone, and you buy insurance within 13 months of the map update. In this case, there is only a one-day waiting period.

Private flood insurance generally has a 14-day waiting period and offers broader coverage options than NFIP insurance.

What’s covered by flood insurance

What is covered by flood insurance is the same whether you buy privately or through the NFIP. Structure coverage typically includes:

  • Appliances including your dishwasher, refrigerator, stove, oven, furnace, water heater and heat pump
  • Permanently installed items such as cabinets, paneling, bookcases, carpets, staircases, anchoring systems and foundation walls
  • Detached garages
  • Window blinds
  • Electrical and plumbing systems
  • Solar energy systems
  • Fuel tanks

If your entire home needs to be replaced or rebuilt, you’ll need to meet the 80% rule — the property must be your primary residence for 80% of the year, and you’ll need a policy that covers at least 80% of your home’s value.

Contents coverage, which covers what’s inside of your structure, typically includes:

  • Washer
  • Dryer
  • Microwaves
  • Curtains 
  • Portable air conditioners
  • Carpets not permanently installed, like area rugs and runners
  • Personal belongings, such as furniture, clothes, electronics, kitchenware and so on
  • Up to $2,500 in valuables such as jewelry, fine arts and furs

Contents coverage is valued at actual cash value, which pays based on the depreciated cost for damaged belongings.

Items that aren’t typically covered by flood insurance include:

  • Most furniture and items stored in basements or below-ground rooms
  • Cars 
  • Valuable papers, including cash, currency, stock and bond certificates and precious metals
  • Property outside of the home, such as a deck, patio, fence, swimming pool, hot tub, landscaping or septic systems
  • Mold, mildew or moisture damage
  • Additional living expenses and temporary housing while the home is unlivable during repair

Limited coverage is offered for basements and below-ground living spaces. In these areas, built-in appliances and drywall damage are covered, but most personal items, window treatments, paneling, bookcases and floor coverings are typically not protected. When a flood risk is imminent, the NFIP recommends moving items in underground areas to higher floors to prevent or limit damage.

Private flood insurance may feature expanded coverage plans with higher limits for dwelling and contents coverage, swimming pool repair, coverage for lost business expenses and additional living expenses. 

The cost of flood insurance

The average cost for flood insurance through the NFIP in a year was $700 in 2019. Homeowners and renters in low- and moderate-risk flood zones can purchase preferred risk policies, which offer the same coverage as standard policies and start at $100 a year.

The cost of flood insurance through the NFIP is expected to increase for homeowners in moderate to higher risk areas in October 2021, when the NFIP adopts a new equitable pricing model designed to better reflect a home’s individual flood risk. Approximately 23% of homeowners will see an immediate decrease of $86 a month with the new model, but most homeowners should expect to pay a little more, according to FEMA. Right now, it’s projected that 66% of NFIP policyholders will see $0 to $10 increases every month, 7% will see $10 to $20 increases per month and 4% will see increases over $20 a month. You should expect to pay more for a policy if you live in a higher-risk area. 

 If your home floods and you’re not insured, you may not receive assistance from the government. Federal disaster assistance is available only when the president makes a formal federal disaster declaration — and this aid is usually limited to a $5,000 loan that you will have to repay.

Do I need flood insurance?

If you live in a high-risk flood zone, you may be required to get flood insurance. If not, flood insurance is optional. Homeowners can choose to buy home and contents coverage; renters are eligible only for contents-only flood insurance. 

FAQs 

1. Does homeowners insurance cover flood damage?

No, in most cases homeowners insurance does not cover flood events. If you’re in a high-risk zone, you may be required to purchase flood insurance. Otherwise, flood insurance is optional. 

2. What is preferred risk flood insurance?

This low-cost flood insurance policy is available to renters and homeowners in low- to moderate-risk flood zones. Rates start at $100 annually. Policies typically cover up to $250,000 for a dwelling and $100,000 for personal belongings.

3. Is the NFIP ending?

The program is not ending — but the pricing and rating structures are changing. The Risk Rating 2.0 model will take effect on Oct. 1, 2021, for new NFIP policies and April 1, 2022, for existing policies. This new risk rating will set annual premiums based on each individual property’s risk using the most recent actuarial practices to set rates. Most homeowners can expect a small increase in premiums when the new model is enacted. The current modeling system uses the 1%-annual-chance coastal and river flood risk to determine rates

4. How do I find the right flood insurance coverage for my home?

You can purchase flood insurance through the NFIP or a private insurance company — like Liberty Mutual, Berkshire Hathaway, Assurant or AIG. The right flood insurance coverage for your home is based on the cost to replace your dwelling structure and your personal belongings. Coverage is limited to $250,000 for the structure and $100,000 for contents through NFIP, but private insurance can provide more coverage. If you are unsure about the right amount of flood insurance coverage for your home, speak with your insurance agent or contact NFIP at 877-336-2627.

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