Most home insurance policies exclude flood damage, which can cost tens of thousands of dollars even with only an inch or two of water. To protect your finances, consider purchasing separate flood insurance coverage. This is how it works.
What does flood insurance cover?
Flood insurance protects against specific types of water damage to your house and property. The National Flood Insurance Program, or NFIP, describes flooding as “an excess of water on land that is normally dry.”
Flood insurance includes scenarios like:
- A river, lake, or bay exceeds its banks.
- A hurricane storm surge.
- A heavy rain that collects faster than it can drain.
- A mudflow.
- Melting snow penetrates into your home.
Flood damage is often not covered by homeowners, condominium, renters, or mobile home insurance plans. So, if your property is at risk of flooding, you will typically need to get this coverage separately.
Types of flood insurance coverage
The NFIP provides two forms of flood insurance: building and contents, each with a different deductible. A deductible is the portion of a claim that you are responsible for paying.
Building coverage
Building coverage protects your home’s structural integrity. (It is comparable to dwelling coverage on a homeowner’s policy.) It compensates for flood damage to items like:
- Electric and plumbing systems.
- Water heaters.
- Furnaces.
- Foundation walls.
- Built-in appliances and cabinets.
- Carpets are permanently installed.
- Detached garages.
- Fuel and well-water tanks.
- Solar energy equipment.
- Staircases.
- Window blinds.
The NFIP provides building coverage for up to $250,000.
Contents coverage
Contents coverage, like personal property coverage on a homeowners or renters policy, insures your items against damage. An NFIP policy contains the following:
- Clothing.
- Furniture.
- Electronics.
- Original artwork (up to $2,500).
- Curtains.
- Washers, dryers, and microwaves.
- Portable air conditioners.
- Carpets were laid over wooden flooring.
The NFIP insures your belongings on an “actual cash value” basis. This implies that if you file a flood insurance claim, your compensation will be based on the value of your items at the time the flood occurred.
Here’s an example. If floodwaters permanently damage your 15-year-old recliner, your policy will cover the cost of a used recliner of comparable age and quality, but not a new one. Multiply this type of gap by each item in your home, and you may discover that your insurance reimbursement is insufficient to replace what you lost.
NFIP insurance provides up to $100,000 in contents coverage.
Flood insurance coverage beyond the NFIP
You may be able to obtain broader coverage and higher limits by purchasing flood insurance from firms that do not participate in the NFIP.
For example, Neptune provides building coverage up to $4 million and contents coverage up to $500,000. Meanwhile, Chubb’s overall coverage maximum for your home and goods is $15 million. Both organizations can cover your goods at replacement cost, which means you might replace your old, flood-damaged recliner with a fresh new one.
What doesn’t flood insurance cover?
The regular NFIP policy does not cover some charges, including:
Some water damage.
The NFIP only pays for damage caused by natural flooding that affects at least two acres and two properties. This means it will not cover situations like an overflowing bathtub that floods your bathroom. (Your homeowners insurance may cover the problem.)
Damage to certain goods and areas of your home
The NFIP does not compensate for flood damage to any of the following:
- Swimming pools and hot tubs.
- Decks.
- Patios.
- Landscapes and fences.
- Wells.
- Valuable papers.
- Currency.
Most of your basement
The NFIP provides modest flood insurance coverage for basements. As previously stated, it will pay for damage to large appliances such as central air conditioners, water heaters, washers, and dryers. However, your insurance will not cover items such as furniture, electronics, finished flooring, bathroom fixtures, or generators.
If you have a completed basement, consider private flood insurance as an alternative to the NFIP.
Living expenses if you can’t stay at home
If you need to stay in a hotel or rent an apartment while contractors fix your home following a flood, you will have to cover the costs yourself.
Vehicles
NFIP insurance does not cover automobiles or other “self-propelled vehicles.” However, if your auto insurance policy has comprehensive coverage, it should cover flood damage.
Private insurers typically offer more coverage options and fewer exclusions. Neptune and Aon Edge, for example, can help cover some of the costs associated with moving out of your house while it is being repaired. They also pay for swimming pool repairs and cleanup.
Is flood insurance required?
Some people have to purchase flood insurance. For example, many mortgage lenders demand residents in high-risk flood zones to obtain flood insurance before they can get a loan. If the federal government has previously provided you with grants or other forms of flood assistance, you may be required to obtain flood insurance in order to qualify for similar assistance in the future.
If you do not fit into the categories listed above, you are not required to obtain flood insurance. However, even minor flooding might result in significant financial losses.
A 1,000-square-foot home may be damaged by more than $29,000 with just one foot of water. The NFIP’s tool can help you estimate the cost of a flood based on the size of your property.
Is my home at risk of flooding?
If you’re unsure whether your home is likely to flood, there are a few places you may look. First, visit the Federal Emergency Management Agency’s Flood Map Service Center. Type in your address to determine if your home is in a Special Flood Hazard Area, according to the federal government.
Another website to check out is Risk Factor. A nonprofit organization’s program utilizes climate change data to assess your home’s risk of floods (as well as wind, wildfires, extreme heat, and pollution).
Are there other ways to pay for flood damage?
If you live in a low-risk location, consider the cost of coverage versus the possibility of needing to file a claim. If your location has never seen major damage and you are considering foregoing flood insurance, save aside money for any necessary repairs.
Some states, such as Mississippi, Alabama, and South Carolina, allow residents to save emergency funds in Catastrophe Savings Accounts. You are not required to pay state income taxes on the money you deposit into these accounts or on the interest earned.Â
However, you may still be required to pay federal income taxes on that money, and the state may levy a penalty tax if you use it for anything other than disaster repairs.
Won’t the government help?
Some people don’t obtain flood insurance because they believe they would receive money from the federal government if their home floods. However, this could be a pricey option.
FEMA does provide grants if the president deems your state a major disaster area and authorizes individual aid in your county. However, the typical FEMA disaster compensation is $5,000, which may be insufficient to cover the cost of rebuilding following flooding.
You may be able to obtain more funds by taking out a low-interest loan from the Small Business Administration. But, unlike a flood insurance payout, you will have to repay this money.
How much flood insurance do I need?
The amount of flood insurance coverage required is determined by the size and structure of your home, as well as the value of your goods. For example, if you live in a large one-floor ranch, you may want more coverage than if your home is two storeys tall and half of your belongings are above the reach of most floods.
An insurance professional can help you determine how much building coverage you need. Meanwhile, a home inventory is a fantastic approach to determine the value of your possessions.
If the NFIP does not provide adequate coverage, consult your insurance agent about purchasing excess flood insurance to bridge the gap. Excess insurance normally provides the same coverage as your NFIP policy, but with greater limitations that apply once you’ve exhausted your NFIP coverage. It is offered from private companies like Wright and SWBC. A local insurance agent can direct you to possibilities in your area.
Alternatively, you might avoid the NFIP and opt for private flood insurance with larger limits.
How much is flood insurance?
ReliableInsurance found that the typical federal flood insurance policy costs around $819 per year. You may pay much more or less depending on where you live, the size of your house, and other considerations.
How Flood Insurance Works
Flood insurance works similarly to other insurance policies: as long as you pay your premiums, the insurance provider will provide financial assistance if a covered catastrophe occurs. In this situation, the covered event is a flood.
To receive a payout, you must file a claim with your flood insurer. You can normally do this by contacting the firm or agent that sold you the policy. You will need to report the date of the flood and provide information about the damage.
The insurance company will usually send an adjuster to your home to assess and document the damage. They will next determine whether you are covered under your policy. (For example, if you only have building coverage, your insurance company will not pay for damage to personal belongings like furniture or clothing.)
Once the insurance provider confirms your coverage and the extent of the damage, it will issue a payout that you can spend to repair or replace lost things. Any applicable deductibles will be removed from your claim reimbursement.
How to Get Flood Insurance Coverage
You have various options for purchasing flood insurance. The NFIP sells its policies via approximately 50 insurers, so you may be able to purchase flood insurance from the same firm that provides auto or homeowners coverage.
To purchase an NFIP coverage, you must live in one of the program’s thousands of participating communities.
If NFIP insurance is not available in your location, you might look into private flood insurance firms. Even if you have access to NFIP insurance, you may be able to find lower rates with a private insurer. A local independent agency can assist you with comparing prices.
Don’t wait until a hurricane approaches your home to get covered. When you acquire flood insurance, there is usually a waiting period before the coverage begins. The waiting period for NFIP policies is typically 30 days, while other policies may be shorter, ranging from 10 to 15 days.
You could wish to give your insurer an elevation certificate to see if it can assist lower your premium. An elevation certificate is a document that states your home’s lowest floor elevation and is used by the insurance to assess its flood risk. Some property owners were previously required to provide elevation certificates in order to obtain coverage from FEMA, however this is no longer necessary.
You can obtain an elevation certificate from your local flood plain management or have a property surveyor or engineer create one for you.
