What is Flood Insurance and Do I Need It?

Flood insurance is pretty easy to understand; it’s a type of insurance coverage that is bought to protect property owners against damage caused by flooding. Insurance companies define flooding as excess water on land that is normally dry, that affects two or more acres and/or two or more properties. Most people don’t know that a standard homeowners, renters, and business insurance policy does not cover flood damage; it is crucial for property owners and renters to understand the risks they face and if they should consider purchasing a separate flood insurance policy. We’ll discuss why you might need or are required to buy flood insurance, the benefits of having it, and whether or not you should get this coverage even if you don’t think you need it.

Do I need flood insurance?

There are several factors to consider when you are answering this question. These factors include:

• where you live
• the elevation of your property
• the likelihood of a flood occurring in your area

If you reside is in a low-lying area, or you live in a region prone to hurricanes, typhoons, heavy rain, or other natural disasters that could cause flooding, you are more likely to need flood insurance.

Designated Flood Zone (high risk flood area)- You can do a search for your property and see if it is classified as a high risk flood area at the following website https://msc.fema.gov/portal/home

Additionally, when you live in a designated flood zone, nearly all traditional mortgage lenders will require you to purchase flood insurance in order to receive their funding.

Am I Required to Have Flood Insurance?

There are a few groups that are required to have flood insurance.

• Government-Backed Mortgages- Homes and businesses in a high-risk flood area or designated flood zone with a government-backed mortgage must have flood insurance.
• Private Mortgage Lenders- typically flood insurance is federally required for those living inside of a high-risk area, but some lenders may require flood insurance outside of a flood zone.
• Recipients of Disaster Assistance- If your home is in a high-risk flood area and you received any federal disaster assistance, including a grant from FEMA (Federal Emergency Management Agency) or a low-interest disaster loan from the SBA (U.S. Small Business Administration) you are also required to obtain and maintain flood insurance to be eligible for any future federal disaster aid.

Flood Insurance Types

The NFIP uses a risk rating system (The Risk Rating 2.0) to determine equitable and easy-to-understand rates that reflect a property’s flood risk. The tool allows FEMA to distribute premiums equitably based on the home’s value and its flood risk. The tool addresses rating disparities and has new flood risk variables, including storm surges, river overflows, coastal erosion, distance to water, and rainfalls. It also incorporates a home’s elevation and the costs to rebuild. Flood insurance is available for homeowners, business owners, and renters.

Homeowners

Homes, condos, and townhomes have flood insurance policies for the structure and belongings. The foundation, electrical, plumbing, appliances, finishings, electronics, personal belongings, and more are covered. Typically, there are limits of $250,000 for the building and $100,000 for its contents, and these are generally purchased separately. 

Business Owners

These flood policies will protect the business’s structure and equipment, this includes the foundation, furnishings, electrical, plumbing, inventory, furniture, and more. There are limits of $500,000 each for the building and contents, and like homeowners, they are usually purchased separately.

Renters

Renters can also protect their belongings with flood insurance. This includes (but is not limited to) furniture, clothing, TVs, computers, rugs, and artwork. The limit for renters for this content insurance is generally $100,000 and usually starts at the cost of about $99 per year  

What’s Covered By Flood Insurance?

If the cause of damage is flooding, then many things are covered, but for example, if there is sewer backup not caused by flooding, then flood insurance may not cover it, but a homeowner’s or renter’s policy might. Items that are covered by flood insurance depend on if there is a building or contents policy. Below are examples of items typically covered by a building or contents policy.

Building Coverage

• Electrical and Plumbing
• Water heaters and furnaces
• Refrigerators, stoves, and other built-in appliances.
• Installed carpeting
• Built-in cabinets bookcases
• Foundation, staircases
• Windows and blinds
• Detached garages
• Fuel tanks, water tanks, and pumps, solar equipment.

Content Coverage

• Clothing, furniture, electronics, and other equipment
• Curtains
• Movable appliances
• Portable air conditioners
• Movable carpets
• Up to $2,500 in valuable items (art, furs, etc.)

What’s Not Covered By Flood Insurance?

Like all insurance, there are exclusions to flood insurance; precious metals, currency, and valuable papers are generally not covered, and most vehicles, including cars, are not covered. Generally, the area below what is considered the first floor (crawl space and basements) has limited coverage.

With basements, only the foundation, insulation, drywall, staircases, central air conditioners, electrical outlets, and switches are covered with a structural flood insurance policy. Personal property coverage only includes washer dryers, portable air conditioners, and food freezers in basements, with most other personal property excluded. This means that electronic equipment, furniture, kitchen items, shelving, window treatments, and many others are not covered if stored in a basement. Finishing a basement for that man cave or a home theater could be problematic if there was a flood.

Should I Shop Around for Flood Insurance?

Fortunately for us, you can find flood insurance providers through the national flood insurance program (NFIP).  The NFIP partners with over 50 insurance companies and even more agents to offer the same rates for insurance. You can find a partner provider that will offer the same rates and coverage here.

You Don’t Have to Be In a Designated Flood Zone to Buy Flood Insurance

Just because you are not in a designated flood area does not mean you are not vulnerable to flooding. Even if buying flood insurance is not required for your home, it may still be a good idea to purchase flood protection for a property you own or rent. 

Disaster Payments and Payment of Flood Insurance Claims

Flood insurance will pay for claims regardless of whether there is a Presidential Disaster Declaration or not. You can find a list of all declared disasters here: https://www.fema.gov/disaster/declarations

Disaster assistance from the federal government will come in two forms: First is a low-interest loan that must be paid back. The second is a FEMA disaster grant which averages about $5000 per household.

These meager amounts given by the government are nothing compared to the average flood insurance claim with the NFIP, which in 2021 averaged $44,401. A single inch of flooding in a home is estimated to cause $25,000 in damage.

Summary and Final Thoughts

All property owners, and especially for those living in high-risk flood areas, should consider purchasing flood insurance. The benefits of having it are clear. If a flood damages your property, your insurance policy will help pay for the costs of repairing or rebuilding your home. Without flood insurance, you’ll have to pay for many of these repairs out of your own pocket, which can result in a significant financial burden.

Whether you are required to have it or not, it is worth considering purchasing a separate flood insurance policy to protect your property. While for some it may seem like an unnecessary expense, having flood insurance can provide you with peace of mind and help protect you against severe financial losses in the event of an unexpected disaster.