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What Is Flood Insurance?

Flooding has caused many costly natural disasters in the United States, resulting in billions of dollars in losses each year. In fact, 90% of U.S. natural disasters involve flooding, and something as seemingly small as an inch of pooled flood water in a single-story, 1,000-square-foot home can cause nearly $11,000 in damage. 

Standard homeowner’s insurance policies may cover some water damage, but specifically exclude flood damage. Insurance specifically for floods covers the costs of repairing or replacing damaged or destroyed property. Flood insurance are offered as separate, stand-alone policies offered by private insurers and the National Flood Insurance Program (NFIP). 

Is Flood Insurance Mandatory?

Flood insurance may be mandatory for those whose homes or businesses are located in a high-risk flood area. For example, homes in these areas with government-backed mortgages, such as Federal Housing Administration (FHA) loans, are required to have flood insurance to help protect those assets. In addition, if you have received federal disaster assistance like low-interest disaster loans from the U.S. Small Business Administration (SBA) or grants from the Federal Emergency Management Agency (FEMA), you must have flood insurance to be considered for future federal disaster aid. 

Private lenders may also require flood insurance, even if you do not live immediately in a flood-prone area. After all, non-emergency flooding events can occur from summer storms, construction near your home or business, broken water mains, or melting snow. In fact, there’s at least a 1 in 4 chance of flooding during a typical 30-year mortgage term. A flood insurance policy pays claims even if there is no Presidential Disaster Declaration. 

What is a Special Flood Hazard Area (SFHA)?

The Federal Emergency Management Agency (FEMA) defines a special flood hazard area (SFHA) as a geographical area at risk for a 100-year flood, or areas with a 1% or greater chance of being inundated by a flood in any given year.

For homeowners, this means homes located in SFHAs have a 26% chance of flood damage during a 30-year time span, whereas homes outside of SFHAs are significantly less likely to suffer flood damage. However, keep in mind that SFHAs cannot predict flooding caused by construction, drainage system problems, or broken water mains. 

SFHAs are noted on FEMA’s Flood Insurance Rate Map (FIRM), which is often used to determine flood insurance mandates and premiums.

What Does Flood Insurance Cover?

Flood insurance typically covers two types of property: the structure of the home itself and the policyholder’s personal property inside the home.

Personal property coverage, also called contents coverage, typically covers:

  • Personal belongings, such as furniture, window treatments, electronics, and clothing up to the policy’s limits
  • Household appliances, such as a washer, dryer, and portable air conditioning units
  • Any carpeting that is not included in standard homeowner’s policies, such as carpet installed over wood floors
  • Valuable items, such as jewelry, furs, and original artwork with a typical limit of $2,500

Building coverage, or coverage for the structure of the home itself, typically includes:

  • Permanently attached infrastructure, such as plumbing systems, electrical systems, water heaters, and furnaces
  • Built-in appliances, such as dishwashers
  • Permanently installed fixtures, such as built-in bookcases, paneling, and cabinets
  • Permanently installed carpeting, such as carpeting affixed over an unfinished floor
  • Permanent structures, such as staircases and foundation walls
  • Some detached structures, such as detached garages

You may have limited flood coverage for items stored in a basement, as these are more prone to severe damage in a flood due to lower placement in the home. NFIP policies also have standardized maximum coverages: $100,000 in contents coverage and $250,000 in building coverage for homes.

What Does Flood Insurance Not Cover?

In general, a flood is defined as excessive water covering two or more properties, or two or more acres of land that is typically dry. Your coverage under a flood insurance policy varies depending on the cause of the flood. For example, damage from a sewer backup may be covered by a flood insurance policy if the loss was directly caused by flooding. However, if it occurred because of a construction accident, it may not be covered with flood insurance.

Flood insurance typically does not cover:

  • Financial losses caused if you must close your business to allow for repair of flood damage
  • Loss or damage to valuable papers, such as stock certificates and currency
  • Damage caused by mold, mildew, or moisture that could have been avoided by taking precautionary measures after a flood
  • Damage caused by drain or sewer backup (with certain exceptions) and seepage
  • Most self-propelled vehicles, such as cars and motorcycles
  • Costs of complying with laws and ordinances that require removal of debris or that regulate demolition, renovation, repair, or remodeling of a flood-damaged property
  • Personal property stored in a flood-damaged basement, such as furniture and appliances
  • Property located outside of an insured building, such as septic systems, fences, hot tubs, swimming pools, and seawalls
  • Temporary housing and living expenses incurred if you must move out of your home if a flood renders it uninhabitable

How to Buy Flood Coverage Insurance

When deciding whether to purchase flood insurance, consider your location. If you live in an area prone to flooding, tropical storms, or hurricanes, flood insurance may be an important part of your overall insurance coverages.

Keep in mind that National Flood Insurance Program (NFIP) policies typically impose a 30-day waiting period before the coverage goes into effect. However, this may be waived if you are required to purchase flood insurance by a federally backed lender or your purchase is related to a community flood map change. 

You can typically purchase flood insurance with help from a trusted insurance agent or through your current home insurance company. However, if your insurer does not offer a stand-alone flood insurance policy, you can begin your research by visiting the federal website, or calling the NFIP at 877-336-2627.

How Much Does Flood Insurance Cost?

Annual flood insurance premiums for National Flood Insurance Program (NFIP) policies start at $119 per year and vary depending on your home’s risk of future flooding. Insurers use several factors to help determine flood damage and payout risk, including:

  • The design and age of your home
  • The location of the home’s contents, such as the utilities
  • The location of the home itself, such as how it is categorized on FEMA’s Flood Insurance Rate Map (FIRM)
  • The policy’s details, such as coverage amount, policy limits, and the deductible

Insurers also typically evaluate the building’s proximity to flooding sources like rivers and coastlines, as well as the ground elevation relative to the surrounding area and whether the building is on a barrier island.

How to File a Flood Claim

After a flood, it’s crucial to file a flood claim right away and report the damage to your insurer following the company’s claims process. Typically, the insurance company will assign an insurance adjuster to evaluate the damage once the claim is filed. You can request to see their Flood Control Number (FCN) card to confirm that they are the official representative of your insurance company. 

If your home is safe for you to walk through, take photos and videos of the flood damage to the structure as well as your possessions. Be sure to record flood lines on the outside and inside of the building. Record the make, model, and serial number of damaged or flooded electronics and appliances to share with your adjuster. You can typically dispose of flood-damaged items after you record the damage, but check with your insurer to be sure.

If possible, take immediate action to prevent the growth and spread of mold. This includes removing any standing water, using a dehumidifier, and getting air moving inside your home through air cleaners and opening windows if there is no longer a threat of rain.

You may be able to get an advance payment to help you get started with repairs right away. That payment would be deducted from your final settlement. If you have a mortgage on your home, your settlement check from the insurer could be made out to both you and your mortgage company. Be sure to let your lender know that you have an open claim for flood damage so they may endorse the check and send it to you for deposit. 

Increasing Threat of Floods to Homeowners

More than 14.6 million properties in the United States face a substantial risk of flooding. On top of the stress of major damage to your home, floods also negatively affect overall property value. Between 2005 and 2017, there was a $16 billion loss in real estate appreciation due to flooding in coastal states from Texas to Maine. In fact, homes located in flood-prone areas tend to lose property value, whether it has been affected by flood damage or not, according to the American Flood Coalition.

Road flooding has a major impact on home values, as well. Between 2005 and 2016, a typical 2,400-square-foot home located in areas where 4% of roadways had tidal flooding experienced a $4,000 loss in appreciation. A 2,400-square-foot home located in areas where 20% of roadways had tidal flooding suffered a $19,500 loss in appreciation. 

What Can You Do to Protect Your Home Against Floods

While no flood control method is 100% effective, there are some things you can do to help decrease your risk of flooding. Maintaining proper drainage to reduce the risk of standing water is one of the most basic things a homeowner can do. This includes routinely cleaning downspouts and gutters, as well as checking nearby storm drains and drainage ditches to make sure they are clear of debris. Also consider installing flood vents, which allow floodwater to flow freely through a garage or crawlspace instead of remaining trapped in place. 

Improve lot grading by building up sunken areas near the foundation of your home could also protect it from flooding, as well as creating natural green spaces around your home to help facilitate water absorption. This could slow flood waters from reaching your home. Sealing your basement walls and foundation with hydraulic cement or masonry caulk can help keep things watertight in case water levels rise higher.

While no prevention methods can stop flood damage entirely if the water levels rise high enough, it could ensure that smaller events do not affect your home or minimize damage altogether.