If you’re looking at property in locations where there’s a high risk of flooding, your mortgage lender is legally mandated to require you to purchase flood insurance. But how will you know if you’re required to purchase flood insurance? And what exactly does flood insurance cover? This guide will outline what flood insurance protects against and whether you’ll need to purchase flood insurance when buying your next home.
What is flood insurance?
Flood insurance is a type of home insurance that protects your house and belongings in the event it’s damaged by a flood. Typically, standard home and renters insurance policies do not cover flood damage, so you’ll need to buy separate coverage.
An area’s flood risk is determined by the Federal Emergency Management Agency (FEMA). During the home buying process, you can ask your real estate agent if any homes are in a high-risk flood zone and if homeowners typically have flood insurance coverage. When you purchase your new home, your mortgage lender will also inform you if you’re required to purchase flood insurance. It’s not always required, however, there are reasons why you may want to purchase flood insurance even if you are not living in a high-risk area.
Do you need flood insurance?
Buying flood insurance is something that all homeowners should think about - especially if they want to be prepared for any unforeseen circumstances. According to the National Flood Insurance Program (NFIP), more than 20% of all insurance claims were outside of areas with a high risk of flooding.
While you may never need flood insurance coverage, it can pay off in the event of an unexpected natural disaster. If your home floods just one inch, the damage can cost you as much as $25,000. So, whether you live in a high or low-risk flood zone, consider purchasing flood insurance for peace of mind.
What does flood insurance cover?
Flood insurance breaks down into two types of coverage - building property and personal contents. Flood insurance purchased through the National Flood Insurance Program (NFIP) provides up to $250,000 in building property damage and $100,000 in personal property damage. Here’s what flood insurance will typically cover:
Building property coverage:
- The building, foundation, electrical, and plumbing systems
- Air conditioning, furnaces, or water heaters
- Appliances such as refrigerators and stoves
- Permanently installed items like carpet, bookshelves, and cabinets
- Window blinds
- Detached garages
- Debris removal
Personal contents coverage:
- Belongings such as clothing, electronics, and home furnishings (curtains, furniture)
- Portable items such as air conditioning units and microwaves
- Carpets not included under building property coverage
- Washing machines, dryers, and freezers
- Window blinds
- Valuable items up to $2,500
Flood insurance coverage tends to be more limited in underground spaces such as basements and crawl spaces. In these spaces, building property coverage usually includes foundation walls, air conditioning units, drywall only in basements, electrical outlets, fuel tanks, and furnaces. Personal property coverage generally includes washing and drying machines, freezers and food inside them (not including refrigerators), and portable air conditioners.
What does flood insurance not cover?
While flood insurance covers a variety of building and personal contents, there are a few things that your policy does not cover. According to the NFIP, flood insurance does not cover the following:
- Moisture, mildew, or mold damage that a homeowner could have prevented.
- Precious metals, money, or valuable papers like trusts or wills.
- Any property that is outside of the building such as decks, swimming pools, trees, and septic systems.
- Expenses from living in temporary housing or loss of income due to insured property.
- Cars or other vehicles.
Since flood insurance coverage is limited in underground spaces there are a few things that it does not cover. Some examples are window blinds and curtains, carpets and flooring, drywall and ceilings not made of drywall (unless in a basement), and the majority of personal belongings. For a full list of what flood insurance does and does not cover, you can find more information on NFIP’s Summary of Coverage.
When is flood insurance required?
Flood insurance is required if you have a government-backed mortgage and your home is located in a Special Flood Hazard Area (SFHA). FEMA defines SFHA as an area that has flood, mudflow, or flood-caused erosion hazards. If your home is located in one of these areas and you don’t have a government-backed mortgage it’s likely your lender will still require you to have flood insurance. Depending on your mortgage lender, flood insurance may be required even if your home is located in a moderate-to-low risk area.
How much flood insurance do you need?
It’s important to have enough flood insurance to cover a complete rebuild of your home, and sufficient coverage for all your belongings so you’ll get reimbursed for the correct amount if you ever need to submit a claim. The cost to rebuild your home is based on the size of your home, the quality of materials used to build your home, and the cost of labor in your area. Contact your home insurance company for an approximate rebuild cost. Next, calculate the total value of your personal belongings. You’ll find that some policies may have individual limits on possessions within a specific category.
For example, flood insurance purchased through NFIP and its partners covers up to $250,000 in damage for building property coverage and $100,000 in damage for personal property coverage. If you’re looking for a higher coverage limit, consider looking into flood insurance coverage with a private insurance company.
How to get flood insurance
Before getting a flood insurance quote from your insurance company, the NFIP partners with a variety of insurance companies that sell flood insurance. Find out whether your community is participating in the NFIP program. If there are no NFIP partners in your area, you can find flood insurance through private insurance companies.
Depending on the amount of coverage you need for your home and belongings, purchasing through a private insurance company may be the right route. Policies often take 30 days to go into effect so the sooner you purchase flood insurance, the better off you’ll likely be.
How much is flood insurance?
When purchasing flood insurance from the NFIP, the average cost is $734 per year. This average varies from year to year and depends on the state you live in, the size of your home, and the area’s risk factor. For example, homeowners in low-risk flood zones may find policies ranging from $200 - $400 a year. On the other hand, if you purchase private flood insurance you may pay upwards of $1,000 per year. Flood insurance cost is also dependent on whether you purchase both building and personal property coverage, just one policy, or if you buy private flood insurance.
When looking to buy a home, it’s important to know the area you’re moving to and if there are any environmental or climate risks in the area. If you’re moving to a high-risk flood area, you’ll likely be required to purchase flood insurance. Even if you live in a moderate to low-risk area, flood insurance coverage is important to consider.