By Meghan Wentland | Published Dec 30, 2021 3:32 PM
Many homeowners who haven’t read their homeowners insurance policies assume that they are fully covered against all natural disasters—but in the case of flood damage, that simply isn’t true. The vast majority of homeowners insurance policies specifically exclude coverage of flood damage for one simple reason: it’s too expensive to pay for. Flood coverage isn’t cost-effective as an inclusion in general policies. As a result, homeowners in areas that are likely to flood should consider purchasing separate insurance for flooding, and in some cases, depending on the positioning of the land in the flood zone map, they may be required to by their mortgage lenders. This added cost can be a surprise to homeowners, but better to be surprised by the additional expense of flood insurance than to suffer a loss resulting from a flood and find out you’re not covered. Do you need flood insurance? Take a look at how the risks are assessed and decide if you need to consider a policy for your home.
Not all houses need flood insurance. Homes that are on plains or hillsides that aren’t close to water may seem like low-risk locations, and in general, they are. To check, you’ll want to look at flooding maps provided by the Federal Emergency Management Agency (FEMA), which manages natural disasters and assesses the risk that different regions will experience them. FEMA maps allow users to check flood zones by ZIP code. It’s important to look online and make sure you’re looking at the most current FEMA map available, as they are redrawn frequently as weather and development reshape the land. Homeowners with homes that are in obvious flood zones may be required by their lenders to take out flood insurance policies, but for others, these maps can help assess your overall risk and decide whether or not you need this coverage. Once you’ve determined it’s an important component in protecting your home and belongings, you’ll want to consider how the rates are calculated.
FEMA’s maps designate areas based on their overall likelihood to flood. Homes categorized by FEMA as being in 100-year floodplains face significantly higher annual costs than homes that are in moderate to low-risk areas. High-risk locations include low-lying areas and areas with nearby water sources, such as coastal areas and floodplains near rivers. In previous years, FEMA provided homeowners near floodplains with Elevation Certificates, which could be used to determine their overall risk and set their flood insurance rates. Those are no longer used to determine rates, but they can be acquired and used to offset their insurance costs if homeowners have taken steps to elevate their homes above anticipated floodwaters.
Several of the most expensive states for flood insurance are in the Northeast, where states are lower-lying and have significant coastal exposure. Connecticut, Maine, and Rhode Island are joined by New Mexico and Hawaii as the most expensive states in the country for flood insurance. Plains states and those without significant coastal or river expanses are less expensive. Oddly, some states that do have significant flood risks offer some of the lowest rates in the country, such as Texas and Louisiana. Even within each state, however, the specific location of your home can affect the rate you’ll pay: If your house is on a hill, for example, your rate may be lower than someone whose house is right beside the riverbank even though you’re both in the same risk area.
There are two basic types of policies. The first is administered by the National Flood Insurance Program (NFIP). You can purchase coverage directly through the NFIP, with limits of $250,000 on building coverage and $100,000 on contents coverage. In addition, private insurance companies offer flood insurance, but many of those policies are actually underwritten by the NFIP and follow the same guidelines. Several private insurance companies do offer policies that are separate from the NFIP and feature higher coverage limits.
Each policy is divided into two categories: building coverage and contents coverage. Building coverage includes damage to the structure of the building itself and things that are attached to it: foundations, walls, built-ins, and home systems. Contents coverage pays for personal items and appliances not attached to the structure. Contents coverage pays out based on the actual cash value of destroyed items, meaning that they’ll pay the cost to replace the item, less depreciation, and not a brand-new version of the item. Each category is subject to its own deductible before the insurance will begin to pay.
Newer homes are built with flood prevention and abatement in mind. Construction materials that resist water damage and construction styles, such as integrated floor drains on lower levels to speed up drainage in the event of a flood, can reduce the amount of damage caused by flooding and reduce the overall cost of repair. As a result newer homes, especially those that include these kinds of features, cost less to insure. Older homes won’t include these design features and can cost more to repair, especially if the vintage trims and floorboards can’t be replaced off the shelf and will require custom construction. Older materials may also be drier and more absorbent than newer materials and thus more prone to damage and mold. Therefore, older homes are in general more expensive to insure.
Elevating your home, installing floor openings and drains if you don’t have them, and even filling in your basement (especially if you’re in a high-risk area) can reduce the cost of your flood insurance policy.
As with any insurance, the total cost and cost immediately out of pocket can be tweaked based on the balance between how much coverage you want and how high you’d like your deductible to be. A policy with a lower level of coverage and a high deductible will cost the least, whereas a lower deductible and higher coverage limit will gradually raise the total cost. For homes where the risk is lower, a higher deductible can make sense: In that case, you’re purchasing insurance to be on the very safe side, so lowering the premium and accepting a higher deductible on the off chance you need to file a claim makes sense. In a high-risk area, however, low coverage and a high deductible may feel better on your wallet initially but will hurt when the time comes that you need to file a major claim. Balancing these numbers against the risk of actually needing to use the insurance can be tricky, so it’s a good idea to work with an honest agent to help find the sweet spot.
Flood insurance will not cover personal items stored in a basement. The logic there is that if you know you’re in an area where the risk is great enough that you’ve purchased flood insurance, you should be making an effort to protect your own property by storing it carefully above the flood levels if at all possible, and storing items of significant value in a location where they are less likely to be affected. Plan to store valuable or sentimental items in higher locations or protect them with watertight containers. Sentimental items aside, even the location of your home’s utilities is a consideration: If they are elevated, flood insurance likely won’t be as costly.
NFIP plans have a number of benefits to homeowners. First, they can offer coverage to any homeowner and, in some communities, to renters, regardless of the risk level of the home. NFIP plans are backed by the federal government, so there’s no worry about paying for coverage that then magically disappears when it comes time to make a claim. NFIP programs do, however, have maximum coverage amounts ($250,000 for building coverage and $100,000 for contents), which some homeowners may find insufficient. In addition, NFIP plans will not cover damage that occurs as a result of ground shifting or that is on the property but outside the house. Unlike private insurers, however, NFIP plans can’t drop your coverage if your risk assessment changes, so there’s a guarantee of coverage present that may not be the case with other insurers.
Private insurers can offer higher coverage limits and often add coverage of living expenses if you’re forced to live somewhere other than your home during repairs or rebuilding, both of which are clear benefits if your home is of high value and you live somewhere that extensive damage is likely. However, if your risk level changes when FEMA redraws its assessments, private insurers can cancel your coverage with very little warning and no negotiation, leaving you without coverage and facing a month-long waiting period before a newly purchased NFIP policy will take effect, so the better coverage provided by private insurers comes with some risk.
NFIP coverage, upon which many private insurers base their coverage, will cover damage when natural flooding covers at least 2 acres of land and a minimum of two properties. This coverage includes:
However, flood insurance is limited to floods that occur naturally as a result of storms, hurricanes, or large-scale pooling. It will not cover damage to:
These limitations are key to remember: Flood insurance will cover personal items, but not if they’re stored in the basement, so plan accordingly. Similarly, make sure that large sums of cash and important or valuable papers are stored in watertight containers for preservation in case of a flood.
How can you tell if you need flood insurance? First, check the position of your home on FEMA’s floodplain maps. Consider the history of flooding in your area, your proximity to bodies of water that can or often do flood, and what you’ll lose if your home is flooded. Balance that against the cost of the flood insurance, and decide if it’s a good choice for you. Or listen to your mortgage lender—lenders are laser-focused on protecting their investments, so if your lender believes that you need insurance, you do, even after you’re no longer carrying the loan. Water damage can be catastrophically expensive, and 1 foot of water can cause $29,000 worth of damage to a 1,000-square-foot home. If you’re in an area with a reasonable risk of flooding, consider your choice carefully.
In most locations, renters can purchase flood insurance policies for their home’s contents. Damage caused to the property and structure of the home would be the responsibility of the landlord, so renters should not pay for that coverage, but especially in high-risk areas it’s a wise decision to insure your own belongings. Check with the landlord to see if there’s a policy in place, then decide if you need to buy a policy to protect yourself.
Watching the news can easily convince you that flooding is a real threat: Changing climate patterns have shifted the balance of weather and created problems with water where none existed before. Beginning in late 2021, FEMA implemented a new risk-evaluation system to more accurately set premiums for different areas. These assessments take more factors into account when setting the appropriate rate; instead of relying just on elevation and proximity to floodplains, Risk Rating 2.0 considers how often an area has flooded historically and how much it would cost to rebuild in order to set rates more equitably. These assessments can help you evaluate how likely it is that your home will flood and what it might cost to rebuild, which will help you determine if you want the peace of mind provided by flood coverage.
If your mortgage lender requires you to carry flood insurance, you’ll need to comply. If you’re on the edge of an area where it would be required, or if you’ve been carrying it for years and have paid off your mortgage and no longer need to, it’s still a wise investment to protect your home and belongings if you remain in a high-risk area.
Depending on where you live, you may not have a choice about flood insurance: If you’re required to purchase it, you will. But for many who are not required to purchase it, flood insurance can still be truly beneficial. Flood damage can destroy your home, both in the initial stages of soaking your possessions and structure in water that contains debris and bacteria, and then slowly over time via mold and structural instability that can develop as the water dries out. Finding the damage, assessing the damage, and repairing or replacing what needs to be abated is not always straightforward and is very, very expensive. In addition, the negative health effects of slow-growing mold that has gone undiscovered as a result of delayed inspections can be dangerous. Flood insurance can help mitigate these issues.
First, flood insurance provides significant financial support. If your home is flooded during a covered event, you can expect to have the financial support to bring your home back to its pre-flood state, regardless of what your credit limit or savings are. The insurance will cover the cleanup and repair costs, and depending on your policy, it may cover your expenses while you stay elsewhere during the repair.
One of the biggest benefits of flood insurance is that because you know you’ll be covered, you can have inspections and repairs completed immediately. Without insurance, such services will require a significant out-of-pocket expense, which may cause you to delay having the work done. The problem is that water doesn’t care if you have enough to cover the cost of the mold inspection or undermined foundation repair: The problems will get worse, not better, if you delay the repairs. If you have flood insurance, you can have the work done promptly rather than letting problems develop and spread.
Especially if you live in a flood-prone area, the threat of losing your home, your possessions, and your financial security may weigh heavily on your mind. Every homeowner has nightmare scenarios in the back of their mind: What would you grab on your way out if you had only moments to leave in a fire or threat of a tornado? Floods can be just as sudden and just as destructive, if not more so. Knowing that you’re covered financially in a flood can make preparations for and decisions about what actions you would take in a fire easier and more straightforward, and let you rest a bit easier.
Flood insurance premiums are at least partially based on where you live and the size of your home because those two factors affect the risk the insurance company is taking by insuring your home. There are, however, some steps you can take to lower the cost and save some money.
Flood insurance, while generally similar to other types of insurance, has different parameters and regulations than other policies you may be familiar with. As a result, it’s important to ask your agent questions about anything that seems unclear or unfamiliar to you. The problem is when you don’t know what questions to ask! These are some questions that those who haven’t purchased flood insurance before may not know to ask, but whose answers are important.
Especially if you’re in the process of buying a home in a floodplain for the first time, even beginning the research to learn about flood insurance can seem like a tall mountain to climb. These are some of the questions we receive most often from homeowners looking into flood insurance and their answers to give you a baseline of knowledge as you begin to compare products.
Insurers will look at FEMA’s maps to determine your home’s risk of flooding, taking into account your home’s location and elevation, along with the age, size, and design of your home, then combine that information with the level of coverage you’d like and the deductible you’d prefer to pay. Together, this information will allow the company to arrive at a premium cost to insure your home. You’ll be able to negotiate that price a bit by lowering your coverage amount or raising your deductible.
This depends on your insurer and your contract. NFIP has two types of policies: contents coverage, which will pay for personal items, portable appliances, art, freezers (not refrigerators) and their contents, and washers and dryers, and building coverage, which will cover whole-house systems like plumbing and electrical; built-in appliances and bookcases; building materials including carpets, paneing, wallboard, and cabinets; and detached garages. Comprehensive plans will cover both of these, and private insurers will have specific lists that will be similar to NFIP coverage. Check your policy carefully before you buy it to make sure the components in your home that will cost the most to replace are covered.
Flood insurance premiums are usually paid annually, because that’s the simplest way to make sure coverage is in place when you need it. Because there’s a waiting period between when you sign your policy and when it takes effect, monthly payments would make it difficult to keep track of when the policy is in effect and when it is not.
However, if you have an escrow account with your mortgage lender and are paying your homeowners insurance and taxes through that account, you can often include your flood insurance and have it paid for you through that escrow account. That can help spread the payments out across the year, so if the initial cost of the insurance is prohibitive for you, inquire with your lender to see if paying through escrow is an option.
NFIP policies last for 1 year, and then you can check your coverage options and renew. Private insurers have different policy periods, so you’ll need to check the companies you’re considering and see how they compare.
Sewage backups are considered a maintenance issue, not a flooding issue, so they are not covered by flood insurance as a rule, though certain levels of NFIP coverage will include sewer coverage. If this is a concern for your home, check your homeowners insurance policy; you may be able to add an extra endorsement to your homeowners policy to make sure that sewer backups are covered.
You can purchase flood insurance at any time. However, the policy may not take immediate effect—so don’t wait to purchase the policy until a 100-year storm is on your doorstep. Policies purchased through NFIP have a standard 30-day waiting period between the purchase of the policy and the date that the policy takes effect, while private insurers usually have a waiting period closer to 14 days.
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