What is Flood Insurance?

what is flood insurance

If you take a look at most of the standard homeowner’s insurance policies—HO-1, HO-3, and HO-5, you likely notice that most of them are curiously absent of what might seem like a significant peril—floods. Most standard homeowner’s insurance policies do not include flood protection as part of the package.

In cases where flood protection is not included in your homeowner’s policy, you can buy separate flood insurance.

 

What is Flood Insurance?

 

Flood insurance is a special type of property insurance meant to protect your dwelling in the case of floods. Most of the time, flood insurance comes in the form of an endorsement, an extra premium you add to your standard homeowner’s policy. In most places, major floods are considered significant life events, and you will not be covered if you don’t have supplemental insurance.

 

Why Isn’t Flood Insurance Included in a Homeowner’s Policy?

 

Despite what you might think, the risk of flood is usually great enough that if flood insurance were included in your homeowner’s insurance policy, you’d probably be paying through the nose for your monthly premium. Flooding is a common enough peril that most insurance companies won’t cover it with their standard plans. As such, homeowners need to buy extra insurance to cover that one blindspot their normal policy does not cover.

In some states where flooding is common, such as Florida, homeowners may be required by their mortgage lender to purchase supplemental flood insurance if the dwelling is an A or V flood zone.

 

What Does Flood Insurance Cover?

 

Flood insurance has protections for both your dwelling (physical structure of home) and its contents. These two categories have different deductibles and limits of coverage.

Coverage for your physical dwelling structures usually covers damages to

  • Foundations
  • Plumbing systems
  • Water heaters
  • Fridges, washing machines, and other large appliances
  • Permanently installed fixtures like carpets.

Flood insurance also offers protection for your personal possessions; things like

  • Clothing
  • Electronics
  • Furniture
  • Artwork
  • Smaller appliances (e.g., microwave)

Property protection for items in a flood insurance plan usually contains sub-limits for specific types of items. Artwork is a common item that has a sub-limit in flood protection plans. For instance, your flood protection plan may have a $4,000 sub-limit for artwork.

If more than $4,000 of your artwork is damaged in a flood, then your insurance will only pay for $4,000, even though your broad property coverage might be different. Make sure you have a solid understanding of the categories included in your insurance plan and the respective sub-limits.

 

What Does Flood Insurance Not Cover?

 

As is the case with virtually every insurance plan, flood insurance will not cover some specific kinds of damages. For instance, precious metals and valuable paperwork are often excluded from flood insurance protection, as are automobiles (auto insurance handles that).

Flood insurance may also not cover specific parts of the house. Typically, flood insurance will not cover anything that is under the ground level of the home. So very often, basements, aside from their foundations and electrical/cooling systems,  are excluded from flood insurance coverage.

In general, property stored in your basement will also not be covered. The lack of coverage of basements can be problematic for homeowners who might have a guest bedroom or home theater down there.

 

What Counts as a “Flood”?

 

Flood insurance is only meant to cover damages that are directly caused by flooding. A “flood” is defined as “an excess of water on land that is normally dry that affects two or more acres of property.” Damages caused by floods include direct water damage to foundations, walls, etc., but can also include other damages indirectly caused by the flood. Flood insurance will cover any damages caused directly or indirectly from flooding.

For instance, if the sewage in your house backs up and overflows due to exterior flooding, then flood insurance will cover it. If the sewage backup is not directly caused by the flooding, then it won’t be covered on your policy.

 

Do I Need to Buy Flood Insurance?

 

You will be required to purchase flood insurance if any of the following conditions apply:

  • Your loan is secured by a dwelling permanently attached to some piece of land
  • You live in a FEMA-designated Special Flood Hazard Area; areas with a higher risk of flooding than average
  • You have a federal mortgage
  • The house is in a community that is part of the National Flood Insurance Program (NFIP)

Keep in mind that you might still have to purchase flood insurance even if you live in a low-risk area. It depends on the risk-tolerance of your lender. Also, if you ever need to receive disaster aid from FEMA or receive a small business loan from the Small Business Administration (SBA), then you are required to have flood insurance.

If, however, your home is not located in a hazardous flood zone, you should consider flood insurance if it’s located in an area or neighborhood that has outdated infrastructure that is poorly maintained. The cost of flood insurance outside of a hazardous flood zone is typically less than half of the cost of a policy if you are in a hazardous flood zone.

 

Where Can I Buy Flood Insurance?

 

The majority of flood insurance in the US is issued by the National Food Insurance Program (NFIP), a program created by FEMA in 1968 to help homeowners deal with the catastrophic damages of heavy flooding. Communities that participate in the NFIP are called NFIP-communities, and homeowners in those communities are eligible for NFIP insurance. Overall, NFIP flood protection makes up about 95% of flood insurance policies in the US.

Most of the top homeowner insurance companies will be able to help you with flood insurance.

If your house is not located in a community that participates in the NFIP, you can still get flood insurance; you just have to go through the private flood insurance market.

 

How Much Does Flood Insurance Cost?

 

The exact cost of flood insurance depends on your specific situation and risk profile. That being said, according to FEMA, the average NFIP policy costs around $700. If you live in a moderate-to-low-risk area, then you might be eligible for a cheaper NFIP plan that can cost as little as $200.

Given that private flood insurance makes up such a small percentage of the market (~5%), it’s hard to find accurate data regarding the average cost of a private flood insurance plan. Some private flood insurance companies advertise that they offer plans that are up to 25% cheaper than NFIP plans.

 

Use our Map to Find the Best Flood Insurance Rates in Your State!

Should I Buy Flood Insurance?

 

Buying flood insurance is definitely a smart decision, even if you are not required to have it by your mortgage lender. Some 98% of counties in the US experience some type of flooding, and even just 1 inch of water can cause up to $25,000 in damages to your house. You are almost 30 times more likely to experience just one flooding event over a 30-year mortgage than you are a house fire. Also, almost 90% of all natural disasters in the US involve some form of flooding.

Moreover, if you live in a low-risk area, then you can get NFIP flood insurance for a very reasonable price. Flood insurance may be a good idea if you live near the base of a mountain where water runoff is common, or you live in a newly developed area that may not have proper flood drainage mechanisms yet.

If you are currently shopping around for homeowner’s or flood insurance, then consider using our insurance lookup tool. Using our tool, you can look up quotes from several reputable providers to compare and contrast costs and find an insurance policy that works for you.

 

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For more information about flood insurance, please contact us through our website or call 800-712-8519 during normal business hours.

Frequently Asked Questions

What is flood insurance?

Flood insurance is a special type of property insurance meant to protect your dwelling in the case of floods. Most of the time, flood insurance comes in the form of an endorsement, an extra premium you add to your standard homeowner’s policy. In most places, major floods are considered significant life events, and you will not be covered if you don’t have supplemental insurance.

What is NOT covered by flood insurance?

As is the case with virtually every insurance plan, flood insurance will not cover some specific kinds of damages. For instance, precious metals and valuable paperwork are often excluded from flood insurance protection, as are automobiles (auto insurance handles that).

What are some items covered by flood insurance?

Flood insurance coverage for your physical dwelling structures usually covers damages to:

Foundations
Plumbing systems
Water heaters
Refrigerators, washing machines, and other large appliances
Permanently installed fixtures like carpets.