Do I Need Flood Insurance Coverage?

Floods are such a common and costly disaster that insurance companies won’t cover them with homeowners policies. Instead, you have to buy separate insurance to protect your home and belongings from flood damage. Here is key information to help you decide if you need flood insurance.

When is flood insurance required?

If you finance a home in a high-risk flood zone with a government-backed loan, your lender will require flood insurance. Since these include loans issued by federally regulated or insured lenders, the requirement applies to almost every type of mortgage.

A high-risk flood zone is an area with a 1% chance of flooding in any given year, based on data collected and mapped by the Federal Emergency Management Agency (FEMA).

If you have a mortgage, the only way to get around the flood insurance requirement in a high-risk flood zone is to petition FEMA to change your property’s flood designation.

Lenders also have discretion to require flood insurance for homes outside of high-risk flood zones.

Do I need flood insurance when it’s not required?

If your lender does not require flood insurance, you may still need or want it on an optional basis. Here are the main reasons to consider flood insurance if you don’t have a mortgage or your home is outside of a high-risk flood zone:

• Flood damage can be expensive. In recent years, the average cost of flood insurance claims have ranged from $42,580 in 2018 to $91,735 in 2017, the year that hurricanes Harvey, Irma and Maria struck.
• Disaster assistance has limitations. Federal disaster relief requires a presidential emergency declaration and typically includes grants, which average about $5,000, and low-interest loans. Flood insurance can provide up to $250,000 in building coverage and up to $100,000 in contents coverage, including coverage for floods that don’t meet the threshold for a presidential emergency declaration.
• Flooding is more common than you may think. More than 40% of federal flood insurance claims between 2014 and 2018 were for homes outside of high-risk zones, according to FEMA.

How can I tell if I need flood insurance?

The best way to tell if you need flood insurance is to look up your address, or the address of a home you want to buy, on a FEMA flood map. These are available online at the Map Service Center on the FEMA website.

After you enter your address in the search window, the system will pull up a map showing the flood risks in your neighborhood.

• High-risk flood zones, also known as special flood hazard areas, begin with the letter A or V, such as Zone A1 or Zone VE. 
• Zone B and some Zone X designations indicate moderate risk.
• Zone C and some Zone X designations denote low-risk flood zones.

If you’re buying a home, the seller does not need to disclose its flood risk. Your own real estate agent should know but might not. Your lender, on the other hand, is required to look up the property’s flood risk and let you know if you need flood insurance.

How much flood insurance do I need?

When your mortgage requires flood insurance, you usually need to obtain building coverage in the lower of the following amounts:

• The home’s replacement cost value, which is the cost of rebuilding it to its existing specifications and quality grade in the event of a total loss.
• The maximum amount of building coverage available through the National Flood Insurance Program (NFIP), currently $250,000.
• Your loan balance.

For example, if the replacement cost value of your home is $150,000, and you finance it with a $120,000 loan, your lender will require a building coverage limit of at least $120,000.

If you finance a $500,000 home with a $400,000 loan, your lender will require $250,000 in building coverage, the NFIP’s maximum limit.

When you buy flood insurance on an optional basis through the NFIP, you can usually choose any amount of building coverage, up to the $250,000 limit. Some private flood insurance companies offer higher building limits.

In addition to building coverage, flood insurance is usually also offered with contents coverage, which covers your belongings.

The best way to determine how much contents coverage you need is to create a list of your possessions, including clothes, furniture, appliances and other personal property and the estimated value of each item. Then just add up their total value.

How do I get flood insurance?

The best way to get flood insurance is to begin by asking your current homeowners insurance agent, or the agents you are shopping with, for a flood insurance quote.

Most local insurance agencies have at least one agent on staff who is authorized to sell NFIP flood insurance and/or policies available through private flood insurance companies.

The average cost of flood insurance is $958 per year, or $80 a month.

It’s best to compare your NFIP quote to quotes from any private flood insurance companies that serve your area. Some private flood insurance companies offer coverage that adds to the protections included in an NFIP policy.

Also important to note:

• NFIP policies have a 30-day waiting period, unless you get one with a home loan. Private flood insurance is sometimes available with a shorter waiting period.
• Flood insurance does not cover damage to your car resulting from a flood. Auto insurance only covers it if your policy includes comprehensive coverage.

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