Flood Insurance 101


Did you know 90 percent of all natural disasters in the U.S. involve some type of flooding? According to the Federal Emergency Management Agency (FEMA), floods occur in every region of the country. You may be surprised, then, to learn that most homeowners insurance doesn’t cover flood damage. So how do you protect your home from flood damage? Let’s dig into what Flood Insurance is, why you may need it, and how much it costs.


What is Flood Insurance?


Flood Insurance is a separate type of property insurance from your homeowners policy that covers a building, its contents, or both for losses and damage specifically due to flooding caused by heavy/prolonged rain, melting snow, coastal storm surges, blocked storm drainage systems, or dam failure.


A couple key points on Flood Insurance:

  • Remember that floods are not covered under homeowners or renters insurance policies.

  • Homes and businesses in high-risk flood areas with mortgages from government-backed lenders are required to have Flood Insurance.

  • Flood Insurance is most often administered through the federal government, and you can purchase policies from any insurer under contract with FEMA.


Why would I need Flood Insurance?


According to FEMA, one inch of floodwater can cause up to $25,000 in damage. A Flood Insurance policy is a great way to protect your assets from the cost of flood damages and loss—whether or not you live in a high risk area.


Say your home is damaged by flooding and you do not have Flood Insurance. Your best option for financial relief would most likely be a loan. If your area is declared a disaster area, there will often be no- or low-interest loans made available by the federal government, but these loans still have to be paid back, and you'll be liable for the entire cost of damages, repairs, and losses.


When moving into a new home, it’s important to ask either your mortgage lender, local officials, or insurance agent if your area is prone to flooding. You can also get this information from the National Flood Insurance Program (NFIP). But keep in mind that 20 percent of all flood claims are filed in areas with low to moderate flood risk—which means even if you’re not in a high risk area, you should prepare for the possibility of flooding and understand your coverage options.


How much does Flood Insurance cost?

The average annual cost of an NFIP policy is $699, and the pricing of these Flood Insurance policies is regulated by the NFIP. While your price will not differ between issuers, annual premiums can still vary widely. When determining the cost of your policy, insurance providers will look at:

  • Location

  • Flood zone designation

  • Type and size of the structure

  • Age of property

  • Number of floors


Price will also depend on your type of coverage—for example, Replacement Cost Value or Actual Cash Value—and a Preferred Risk Policy is a lower-cost policy that provides both building and contents coverage for properties in moderate to low risk areas for one price. You may also be eligible for NFIP discounts if you live in a community with qualifying flooding safeguards in place.


It’s worth noting that with NFIP policies, the maximum coverage for residential structures is $250,000 in building coverage and $100,000 in contents coverage. You can still seek out coverage outside of the NFIP, and this is a particularly good idea if you want to insure your property for a larger amount.


How do I purchase Flood Insurance?


It’s a good idea to simply start with the insurer issuing your regular homeowners policy. Federal Flood Insurance policies can be purchased directly from nearly 100 different insurance companies. You can also augment an NFIP policy with excess insurance through your insurance provider.


Another option is to opt into the Voluntary Flood Market. Communities that join the National Flood Insurance Program implement minimum floodplain management regulations that govern new construction in the Special Flood Hazard Area. Residents of enrolled communities are then eligible to purchase flood insurance through the program


It’s important to note that federal policies typically require a 30-day waiting period before your policy takes effect—so acting early is key.


Before an act of nature causes damage to your property, ask your local Cushman Insurance agent to get a Flood Insurance quote or explain your current coverage. Our agents are here to help every homeowner understand their unique insurance needs and clearly explain your existing coverage, so you can rest easy.


Contact us today to learn more.



Sources:

  1. Flood Insurance 101. Investopedia. https://www.investopedia.com/terms/f/flood-insurance.asp

  2. Flood Insurance. FEMA. https://www.fema.gov/flood-insurance

  3. Understanding the Voluntary Purchase of Flood Insurance. University of Pennsylvania. https://riskcenter.wharton.upenn.edu/wp-content/uploads/2020/05/Understanding-the-Voluntary-Purchase-of-Flood-Insurance.pdf


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