What Is Flood Insurance and How Does It Work?

·12 min read

Flood insurance is a policy separate from your standard homeowners insurance policy that covers damages to your home and personal property caused by flooding,

Many homeowners are surprised to find out that their home insurance doesn’t cover flood damage.

Even if you think you’re not at risk of flooding, there are good reasons to carry flood insurance, almost no matter where you live.

How does flood insurance work?

Flood insurance is coverage that’s separate from your homeowners insurance. Most flood insurance policies are purchased through the National Flood Insurance Program (NFIP), a federal government program under the Federal Emergency Management Agency (FEMA) that subsidizes flood insurance policies in participating communities. There is, however, also private flood insurance.

In most cases, flood insurance is not mandatory. But if you live in a high-risk flood area and you have a federally backed mortgage — such as an FHA loan, a VA loan or a Fannie Mae or Freddie Mac mortgage — the mortgage lender will require you to have a flood insurance policy.

If you’re interested in a federally backed mortgage, check out our lists of the best mortgage lenders and best VA lenders.

What does flood insurance cover?

Flood insurance covers your dwelling and your personal property from damage directly caused by flooding.

Building coverage includes, but is not limited to, the following:

  • Attached structures

  • Detached garages

  • Ranges, refrigerators and built-in appliances like central AC and garbage disposals

  • Construction materials

  • Awnings and canopies

  • Hot water heaters

  • Light fixtures

  • Built-in cupboards, cabinets and bookcases

  • Permanent carpeting

Personal property coverage includes:

  • Personal belongings owned by you, your household or your guests

  • Removable carpets

  • Portable air conditioners units

  • Washer and dryer

  • Valuable items like artwork, collectibles, jewelry and fur (up to $2,500)

Other items covered by flood insurance are the cost of debris removal, loss-avoidance measures like sandbags and the cost of removing property to safety before the flood.

Flood insurance could also cover the cost of doing upgrades to the insured dwelling to comply with ordinances or floodplain management laws, such as elevating the structure, flood-proofing, relocation or demolition.

Home warranties, a product unrelated to flood or homeowners insurance might cover some of the causes of water damage — such as burst pipes — but not the damage itself.

What isn’t covered by flood insurance?

Flood insurance does not cover the following:

  • Additional living expenses

  • Decks, patios and fences

  • Swimming pools and septic tanks

  • Currency, precious metals and stock certificates

  • Cars and other self-propelled vehicles

  • Personal property stored in basements or crawl spaces

Review your policy closely for a full list of policy exclusions.

Flood insurance coverage limits

Flood insurance sold through the NFIP insures up to $250,000 for the building property coverage and a maximum of $100,000 for your personal property. Renters can buy a flood policy that only covers personal property up to the same limit. See our page on the best renters insurance.

These limits can be higher with private flood insurance.

Flood insurance policies may cover the replacement cost of the building or the actual cash value of the flood damage to the dwelling. Contents coverage is always adjusted on an actual cash value basis.

Flood insurance waiting period

An important feature to note is that federal flood insurance has a 30-day waiting period. That means the NFIP policy you buy today won’t kick in until that time period has elapsed.

You may, however, be able to get covered more quickly through private coverage. Some private insurers allow you to be covered 10 or 14 days from the time you open and pay for the policy.

Even with private insurance, you must plan ahead when you buy a flood policy. If you wait until you know there’s a big storm coming, it will be too late to be protected against it.

The waiting period is waived in some circumstances, such as if your community has only recently joined the NFIP or your area has just been designated a high flood risk area.

Are floods covered by homeowners insurance?

Homeowners insurance policies explicitly exclude flood damage from coverage. If this is the only type of home insurance policy you have, then, it won’t help you much when it comes to flood damage.

A home warranty also won’t help much. These products cover repairing the causes of flooding, such as burst pipes, but not the damage caused by such failures. Check out our list of the best home warranties.

Water damage that is covered by homeowners insurance

As a rule, homeowners insurance covers water damage from bad weather as long as the precipitation doesn’t touch the ground before it enters your home. So if a fallen tree branch breaks a window, and rain then floods your living room, the damage should be covered by your homeowners insurance.

Homeowners insurance may also kick in to cover some indirect damage from a flood. For example, if you have to leave your house after a flood, and someone breaks in and steals your television, that loss would be covered by homeowners insurance.

Water damage that is not covered by homeowners insurance

For purposes of your homeowners insurance, a flood is defined as water that touches the ground before it enters your home. causing damage inside, it’s not covered by homeowners insurance.

That leaves you vulnerable to damage from a broad range of possible water sources, unless you have a separate flood insurance policy. Those sources include surface water on your property, tidal water or overflow from rivers and streams; mudflows; and seeping groundwater.

Is flood insurance worth it?

If you’ve been flooded before, and live in an area that’s prone to flooding, you’re a prime candidate for flood insurance; indeed, your mortgage lender may require you to get it. On the other hand, you can probably pass on a policy if your home is atop a hill or in a notably dry area.

In between those extremes, though, are many properties not in flood zones where coverage against flooding may be merited.

The reasons include the limitations of federal disaster funds to help with floods. The assistance may not be awarded for flooding in your area, and even if it is, the funds fall well short of homeowners’ losses.

Also, keep in mind that, where the risk of flooding is low, so are the premiums. Adding a flood policy in such an area may be more affordable than you think.

It’s important to remember that just because an area has never flooded before doesn’t mean that it never could.

Is your home at risk of flooding?

Flood risk can change suddenly, and many times over the years. It’s important to always be aware of your flood risk. This way, you can evaluate your needs and plan accordingly.

You can check your neighborhood’s classification on the FEMA flood maps database. However, take into consideration that most flood maps are extremely outdated and may not account for recent climate change, which has been causing more extreme weather and more flooding than ever before.

Another resource to consider is the NOAA storm history database, which tells you which extreme weather events have happened in a specific location. You can use the data to assess if your neighborhood has flooded in recent years. This information is especially useful for homebuyers who may not know if their new home is at flooding risk.

How much does flood damage cost?

According to floodsmart.gov, one inch of floodwater can cause $25,000 in damages. The exact amount a flood may cost you is hard to quantify, however. The bills will depend on how much water comes in, which parts of your house get damaged and what repairs cost in your area.

For example, in 2018, NFIP policyholders received an average flood claim award of $42,580. Meanwhile, in 2017, which saw three hugely destructive hurricanes in Florida and the Gulf area, the average claim was $91,735.

The average cost of flood damage will continue to rise as climate change worsens and natural disasters become more frequent, say climate and insurance experts.

How do you buy flood insurance?

Flood insurance is bought either through an independent insurance agency, some of which specialize in flood insurance, or directly from insurance companies, some of which sell NFIP policies. (There’s no option to buy federal coverage directly from the government.)

Ask the insurance agent if they sell policies from both NFIP and from private insurance companies.

To get flood insurance written by the NFIP, you must live in a community that participates in the program.

You can:

  • Check your community’s membership status on the FEMA Community Status Book.

  • If your community is an NFIP member, reach out to your preferred NFIP-eligible homeowners insurance company and ask to purchase a flood Insurance policy.

  • If your community doesn’t participate in the NFIP or if you live in a low or moderate flood risk area, you can still purchase flood insurance from a private insurer.

If you live in a low-risk flood area, you may be eligible to buy a Preferred Risk Policy, (PRP) which has very low insurance premiums.

Your insurer may offer a discount for bundling your home insurance, auto insurance and flood insurance together.

NFIP vs. private flood insurance

The federal National Flood Insurance Program was the sole insurer for flood insurance in the country for many years. Since 2019, however, private flood insurance —that is, flood insurance not written by the federal government— has entered the market, offering homeowners an alternative to the federal program.

NFIP vs. Private Flood Insurance

NFIP

Private Flood Insurance

Written by the federal government and sold by private insurers

Written and sold by private insurers

Policy renewal is guaranteed

The insurer can cancel the policy at any time

Average annual premium: ~$700

Premiums vary, but can be 20%–50% cheaper in some areas

Maximum coverage: $250,000 for building, $100,000 for contents

Maximum coverage: $500,000 for building, $100,000 for contents

High-value item coverage limit: $2,000

High-value item coverage can be tailored for the policyholder

Mortgage insurance is mandatory

You don’t need mortgage insurance with a 20% down payment or 20% in equity

Waiting period of 30 days before coverage starts

Some insurers set a shorter waiting period of 10–14 days

FHA loan limits are set by HUD and vary by location

Conventional loan limit depends on your lender, income, creditworthiness, and other factors

Flood insurance FAQ

How much is flood insurance?

According to FEMA, the average annual flood insurance premium in 2019 from NFIP was $700 or about $60 per month. Of course, your actual cost will vary depending on the amount of coverage and the deductible you select, as well as the specifics of your home and location. If you live in a special flood hazard area, expect your flood insurance cost to be higher.

Note that since NFIP insurance is regulated by the federal government, there’s little variation in flood insurance rates between insurers that sell it, so this is the one time you don’t need to shop around for the best price.

However, it is worth checking the availability and premiums for private insurance where you live, since private coverage is less expensive in some areas.

What does flood insurance cover?

Flood insurance covers your dwelling and your personal property from damage directly caused by flooding.

In general terms, the building coverage typically includes the structure as well as built-in features that can’t easily be removed, like lighting, cupboards, and some appliances.

Contents coverage will include your personal property and that of your guests, as well as non-built-in appliances such as portable AC units and washing machines. Flood insurance also covers high-value items like artwork and jewelry but only up to a certain limit.

How to get flood insurance?

To purchase flood insurance, just contact your regular insurance company or insurance agent. FEMA works with private insurers to sell NFIP flood insurance policies, but insurers are also selling private insurance policies to homeowners not eligible for NFIP policies.

How do I know if I need flood insurance?

If you live in a high-risk area and you have a federally backed mortgage, you are required by the lender to have flood insurance.

If you don’t have a federally backed mortgage, but live in a high-risk flood area, you should strongly consider purchasing a flood insurance policy. And even if you live in a low-risk to moderate-risk flood area, you should consider the particulars of your home and location.

What happens if your house floods and you don't have flood insurance?

If your house floods and you don’t have a flood insurance policy, a few options are available to you.

You may request a FEMA disaster grant through the Individuals and Households Program (IHP). The program can issue grants of up to $33,000, though the average payout tends to be much lower —and may, of course, fall short of your actual repair cost. This type of grant only pays for repairs to make your house livable.

Another option is a loan through the Small Business Administration (SBA). Despite the name, the SBA issues disaster loans to homeowners in disaster areas. These loans have very low interest rates, and you can borrow up to $25,000 with no collateral.

How to get an elevation certificate for flood insurance?

When you buy flood insurance through the NFIP, you’ll be asked to provide an elevation certificate, which details the features of your home, including its lowest elevation.

Your home may already have an elevation certificate, so you can ask the seller or the office of your local floodplain manager. If the property needs a new elevation certificate, you’ll need to hire a professional surveyor to issue one.

Summary of Money’s guide to flood insurance

  • Flood insurance covers the building property and its contents from damage caused by flooding.

  • The standard homeowners insurance policy does not cover flood damage.

  • If you live in a high-risk flood zone and have a federally backed mortgage, you’re required by the mortgage lender to have a flood insurance policy.

  • You can purchase a flood insurance policy written by FEMA under the NFIP, provided you live in a participating community, or you can buy a private flood insurance policy if you don’t.

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