15 Minute Read
Thanks to Katrina’s devastating path across the Atlantic in 2005 and the 33 trillion gallons of water Harvey—the "single biggest rain event in U.S. history"—recently dumped throughout the U.S., America is more mindful than ever of hurricanes.(1,2)
However, as many have experienced throughout the years, it doesn’t take a hurricane for your home to flood. Of all the natural disasters—including hurricanes—that the U.S. faces, 90% of them involve flooding.(3)
It doesn’t take a hurricane for your home to flood.
Natural disasters aren’t the only cause of a flood though—flooding can come from just about anywhere. This has left many of us asking the same question: Do I need flood insurance?
Ironically, despite the loss flood victims may face, the homeowners likeliest to come out on top financially are those in the high-risk flood zones because their mortgages require them to carry flood insurance coverage.
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While you may not be able to remove the risk of flooding, you can take measures to considerably reduce your risk—both financially and physically. By talking with your local insurance agent to see if flood insurance is the right fit for you, understanding your options, and planning ahead, you will be armed with information to make the best choices for both your home and your family.
Did You Know? Flood Facts
Since Hurricane Katrina in 2005, the number of homeowners nationwide with flood insurance has declined to just 12%.(4) Even in coastal areas, only about 20% of homeowners have flood insurance.(5) Why is that? Are those of us without flood insurance truly safe from a flood, or do we simply have a false sense of security? Here are several quick facts about floods you might find surprising.
- The damage from just one inch of water can cost a homeowner more than $20,000.(6)
- Flash floods typically carry water between 10 and 20 feet high.(7)
- It takes just six inches of fast-moving water to knock over an adult and 12 inches to sweep away a small car.(8)
- Water moving at 10 mph can wield the same pressures as wind that’s moving at 270 mph.(9)
- If you live in a 100-year flood plain, your home has a 1% chance of flooding every year. In the last three years, Houston alone has seen at least three 500-year floods.(10)
- If you live in a single family home valued at less than $250,000 and it gets flooded, you’re likely to incur more damage on your home than it’s worth.(11)
- If you live in a flood plain or a high-risk area, you are required to have flood insurance if your home has a federally backed mortgage.
Even in coastal areas only about 20% have flood insurance.
How Do You Know If You’re at Risk For a Flood?
There is a common misconception that low-risk flood zones are "no risk" flood zones. But, because flood maps change over time, factors like changing weather patterns or local dam improvements could cause the property your house sits on to go from a high-risk flood zone (Special Flood Hazard Area, or SFHA) to a low-risk flood zone at any time. On the other hand, a new neighborhood going in down the street could elevate your home from a low-risk zone to a high-risk zone solely because there is no longer anywhere for excess water to go.
But how do you know your community’s current risk level? FEMA, a federal government agency, updates their flood maps (called "Flood Insurance Rate Maps" or "FIRMs") yearly through both in-house studies as well as community-initiated map revisions—giving each community a designated "risk" category. These maps help mortgage companies decide whether or not they’ll require flood insurance for a loan, and they tell your insurance agent what to charge you for flood insurance. FIRMs change over time to account for changes in land use, community development, weather patterns, wildfires, etc.
The damage from just one inch of water can cost a homeowner more than $20,000.
The Two Types of Flood Insurance
There are two types of flood insurance—one is available through FEMA and the other is available through private insurers. Both types have varying coverage options and costs. But what is the difference between the two, which one is best for you, and what do they each cover? Below is a breakdown of both so you can understand your options.
National Flood Insurance Program (NFIP)
The National Flood Insurance Program, or NFIP, offers flood insurance through FEMA. As long as your community is in one of the nearly 21,000 communities that participate in the program, you should be eligible for both types of NFIP coverage—building property and personal property (contents).
Building property coverage is "replacement cost value" coverage. This means that it covers what it would cost to repair or replace your home up to $250,000 (as long as your policy covers at least 80% of the full replacement cost of your house and you carry the max amount of coverage).
Personal property (contents) coverage replaces up to $100,000 in items and includes depreciation value. So, if you paid $2,000 for that TV three years ago, personal property coverage would pay for what it would be worth today rather than what you paid for it originally or what it would cost to replace it.
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- How Quickly Can I Get Coverage?
It takes 30 days for NFIP coverage to go into effect. However, there are a few exceptions, so don’t wait until the last minute to get coverage if you need it!
- How Do I Get It?
NFIP insurance is sold through regular (aka non-federal) insurance agents who serve as your liaison between you and the federal government. Not all insurance companies offer NFIP though. Contact your local insurance agent to see if they offer it or can recommend someone who does.
- What Does It Cost?
Typically, NFIP is cheaper than private insurance, but not always. Coverage ranges from $112 a year in lower risk areas to $1,207 in higher risk areas, with an average cost of $672.(12,13) If you can’t afford your annual premium up front, you can also pay for it in monthly installments. Keep in mind that both building property coverage and personal property coverage have their own deductibles.
- How Do I Get Paid?
Depending on the nature of the claim and the capacity of your insurance company, full payout may take up to a year—so be prepared to be patient. In some cases, you might have to make repairs prior to your insurance company reimbursing you, or they may ask for a quote to provide payment. They also may have your contractor bill them directly for any repairs made, streamlining the process.
Once an adjuster has evaluated the damage, you can request an advance or partial payment to get started on repairs that can’t wait.
- What Does It Cover?
Assuming you have both policies in place, NFIP will cover up to $250,000 for damage to your home (Building Property Coverage) and up to $100,000 for your belongings (Personal Property Coverage). Below is a breakdown of what is and isn’t typically covered under each.(14) Check out the Declarations Page of your insurance policy or talk to your local insurance agent to find what your coverage includes.
- Building Property Coverage: your physical home and its foundation, built-in kitchen appliances (like a refrigerator or stove), electrical and plumbing, air conditioners, furnaces, water heaters, wallboard and paneling, carpeting, permanent cabinets and bookcases, window blinds, detached garages and debris removal.
- Personal Property Coverage: clothing, furniture, electronics, curtains, portable kitchen appliances, washers and dryers, freezers and the frozen food within them, and up to $2,500 in valuables, such as furs, artwork or jewelry.
- NFIP Flood Insurance Typically Does Not Cover: basements (any area of your home that has its floor below ground level on all sides), damage caused by moisture, mildew or mold that could have been prevented by you as the homeowner (or that was not caused by floodwater), precious metals, stock certificates, bearer bonds or cash, features outside your home (trees, plants, wells or septic systems, walkways, decks and patios, fences, hot tubs or swimming pools), temporary housing, loss of income, or cars.
Private Flood Insurance
Only a limited number of insurers offer private flood insurance—flood insurance not funded through the federal government. Because private flood insurance policies vary greatly by the insurance companies that offer them, you’ll want to ask your local insurance agent to give you quotes on both NFIP and private flood insurance to see what each will cover for you.
Below are some pros and cons of common private flood insurance features to help you understand how private flood insurance may or may not work for you.
- Higher Coverage: Private flood insurance typically offers a higher level of coverage than NFIP’s $250,000 limit on your home and $100,000 limit on your belongings.
- Shorter Wait: NFIP often takes 30 days to go into effect, but with some private insurers your coverage could go into effect in less than a week.
- Additional Benefits: If you have to temporarily relocate, private insurance may provide for short-term housing. Depending on the policy, you could also potentially purchase coverage for items or areas not covered through NFIP.
- Backed by the State: Depending on the insurer and state, it may be backed by a guaranty fund—ensuring the state will pay the coverage if the insurer folds.
- Real-Time Risk Assessment: A private insurer may be more likely than NFIP to give you an up-to-date risk analysis on your property, which could help you better understand and prepare for any flood-related hazards you may face.
- Save Money: Because their risk analysis is more timely, a private insurer may determine that your property is in a lower risk area than FEMA’s flood maps currently indicate, saving you a ton of money on your premium!
- Higher Premiums: With private insurance you’re likely to pay a heftier premium, especially if you live in a high-risk area.
- Not Backed by All Banks: Because banks tend to view private insurance companies as a higher risk than insurance purchased through FEMA, they may not accept private flood insurance if you carry a mortgage with them.
- Not Available in Your Area: If you live in a high-risk area, a private insurer may deny you coverage if they deem you too high of a risk.
Do I Need Both Types?
If your home is worth more than $250,000 and you’re in a high-risk area, you may actually need both types of coverage. Since NFIP policies are typically (but not always) less expensive, consider carrying the maximum amount of coverage through NFIP combined with coverage through a private insurer. That way damages that exceed the limits of your NFIP policy will still be covered.
On the other hand, if your property is considered low-risk and NFIP doesn’t offer the coverage you need, you can streamline your coverage with a policy through a private insurer backed by a guaranty fund. This could potentially give you a faster turnaround with the processing and payment of your claim. Ask your insurance agent if either or both is the right fit for you!
Flash floods typically carry water between 10 and 20 feet high.
Saving Money On Flood Insurance
As with most insurance policies, whether or not you need flood insurance—and what you’ll pay for it—is based on the degree of risk you currently face. So, how can you decrease your risk and lower your premium?
- Compare Rates
When deciding on flood insurance, don’t assume one will be more cost-effective than the other. Be sure to get quotes from your insurance agent for both private and NFIP flood insurance to find out which one will work the best for you.
- Increase Your Deductible
According to FEMA, as of 2015, a $10,000 deductible would result in up to a 40% discount in your base premium.(15) Don’t forget—you will likely have two deductibles, one on the building and one on the contents.
- Maintain Your Coverage
Whether it’s your own home or a home you’re looking to buy, do your best to avoid any lapses in coverage. If your property happens to be grandfathered (see below) into a lower risk category than FEMA’s latest flood maps reflect, this will help ensure your premium stays at the lower rate.
Going the Extra Mile
Want to maximize your savings? Here are a few ways to potentially lower your flood insurance premium even more and reduce your risk of flooding. Talk with your insurance agent to see which steps, if any, are the right fit for you.
- Reduce Your Possible Damage
According to FEMA, homes built in compliance with NFIP standards suffer about 80% less damage than homes that are not.(16) Here are some strategies to protect your home.
- Wet Floodproofing: If the bottom portion of your home sits below Base Flood Elevation—the height floodwater has at least a 1% chance of reaching during the year—wet floodproofing may be the solution for you. To meet NFIP standards, the part of your home that’s within the Base Flood Elevation would need to be a space you’re not living in, like a basement, garage or even a crawlspace. To floodproof the space, you’d need to construct or rebuild it with materials that are resistant to floodwaters. You’d also want to make sure to put in "flood openings"—small openings built into the base of the walls—to allow the floodwaters that come in to flow out without you needing to use a pump.
- Dry Floodproofing: Dry floodproofing prevents the entry of floodwaters into the home through floodproof sealants and barriers. Additional measures typically include a drainage system to divert water away from the house.
- Repositioning Appliances: One option to help mitigate flood damage is to move any heating or cooling systems, as well as electrical panels, as far away from the Base Flood Elevation as possible.
- Elevating Your Home: For maximum protection, some homeowners choose to either relocate their home to an area of their property that is higher in elevation or elevate their home so that it’s above Base Flood Elevation.
- Transfer Over Previous Owner’s Flood Policy
If you are purchasing a home in a flood zone and the seller has a flood policy, they can transfer that existing policy to you—helping you to avoid the headaches of trying to get a new policy. This also allows you to avoid the 30-day waiting period with NFIP for new policies.
- Ask About Grandfathering
As flood maps are being updated by FEMA, your home could go from a low-risk zone to a high-risk zone, raising your premium. If that happens, look into getting grandfathered at your previous flood zone rating. Assuming your home was "built in compliance with the flood map that was in effect at the time of construction," this could save you a ton of money!(17) Keep in mind that if the new maps put your property in a lower risk flood zone, this is likely not a cost-effective solution for you.
- Correct the Map
If the current flood maps show you in a high-risk area but you’re in a low-risk flood zone, you can apply for a Letter of Map Change (LOMC)—an official revision to the FEMA’s flood map—and not have to wait for the map to be physically revised by FEMA.
Looking Ahead With Hope
As many have recently seen firsthand, it doesn’t take living in a flood zone to experience the devastating damage of floodwaters. But by understanding the risks you may face and what your coverage options are, you can venture into the days ahead with confidence—knowing you made the best possible decision for you and your home.
Don’t wait to find out if flood insurance is right for you. Contact your local insurance agent today to ensure you and your family have the coverage you need!