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Return To: Flood Insurance – The Ultimate Guide
Flooding can happen anytime and anywhere. It can be caused by both natural and human activities. Certain areas are also more prone to flooding, causing significant damage to homes and the surrounding environment.
Although floods are considered the number one natural disaster in the country, renters and homeowners insurance typically don’t cover flood damage. If you want to protect your home and its contents in the event of a flood, you need to have flood insurance.
What Is Flood Insurance?
Flood insurance, as the name suggests, is a policy meant to cover losses due to flooding or flood damage. You can get flood insurance either from the federal government or a private carrier.
The National Flood Insurance Program (NFIP) offers policies to participating communities. These policies are, in reality, issued by private carriers, but the terms and rate are established by the Federal Emergency Management Agency (FEMA).
Flood insurance policies from private carriers typically have a more comprehensive coverage than the NFIP policy. Some of these policies may even cover relocation costs and living expenses if you had to move out of your home due to a flood.
There are two types of private flood insurance policies:
- Primary or “first dollar” policies: These are similar to the NFIP policy, but have a greater coverage range. This type of policy has no deductible and the coverage pays for all the losses up to the specified limit.
- Excess flood insurance: This type of policy is meant to supplement a basic flood insurance policy from the NFIP or a private carrier. It’s also available to homeowners who don’t reside in communities that participate in the NFIP.
Does Home Insurance Cover Flood?
As mentioned above, the standard homeowners insurance policy does not cover flood damage. Some of them may cover the costs of sudden or accidental water damage from water heaters or pipe malfunctions. However, most will not cover flood damage, no matter where the water came from.
Here are some of the common water damage exclusions in most homeowners insurance policies:
- Flood due to an overflowing body of water, stormwater, or groundwater leaking or seeping into the basement
- Flood caused by spring thaw
- Water damage due to an overflowing sump pump or a sewer backup
- Damage from all types of natural flooding including hurricane or flash floods
Learn More: Does Homeowners Insurance Cover Water Damage
How Do I Know If I Need Flood Insurance?
If you live in an area that is a FEMA-designated flood zone, you should consider getting flood insurance. Furthermore, if you live in any of the areas listed below, a flood insurance policy is highly recommended.
|Area||Why Get Flood Insurance?|
|Highly Developed Cities||Pavement covers the soil that would usually absorb excess water, increasing the risk of flooding.|
|Areas Prone to Forest Fires||These areas are at a greater risk of experiencing flooding since wildfires may have damaged the vegetation that typically absorbs excess water|
|Areas With Rapid Snowmelt||In certain high-desert areas in the Western part of the country, snowmelt happens rapidly causing extreme water runoff.|
Table: Areas Prone to Flood Damage
Why Do I Need Flood Insurance?
Flood insurance is a legal requirement for many homeowners. Federal regulations require home buyers who are getting government-backed or government-issued financing for properties in high-risk areas to apply for flood insurance.
Even if the property is not located in a high-risk zone, some mortgage lenders may still require the home buyer to purchase flood insurance. This is because these lenders have a higher stake in your property. When your home is financed, the property serves as a collateral until you stop or finish making monthly payments. If it gets damaged by flood, and the borrower stops paying for it, the lender will suffer a huge loss.
Aside from it being a legal requirement to buy a home, there are so many more reasons to have flood insurance. Here are some of them:
- Flooding can happen even when you least expect it. Summer storms, neighborhood construction work, malfunctioning drainage systems — all of these can cause flooding and lead to significant property damage and financial losses.
- Renters insurance, liike home insurance, typically does not cover flood damage. Moreover, your landlord’s flood insurance will most likely only cover the building and not its contents. This means that if the property is flooded, you’ll have no way to recuperate the losses you’ll sustain. Having flood insurance, even as a tenant, helps you protect the items and valuables inside your unit.
- Flood insurance will also help keep your loved ones safe and secure in the event of a disaster. A comprehensive policy will most likely include relocation and living costs, so you can move your family to a safer place while repairs and rebuilding are going on.
- Having flood insurance offers peace of mind. A sudden storm or a river overflow can destroy everything you’ve worked your entire life to build, and this is something that you don’t want to happen. Flood insurance will provide financial protection against the losses you may sustain during such incidents.
How Much Flood Insurance Do I Need?
Flood insurance is a must if the risk of flooding in your home is high. You can determine this by going to FEMA’s mapping tool. The page will show you if there are flood zones close to your property. The tool will also let you know the annual flooding statistics for these specific zones.
If you’re in a high-risk zone, most mortgage lenders will require you to apply for a standard policy before they’ll approve your loan. If you’re in a low-risk or moderate-risk area, you can opt for a low-cost plan meant for lower-risk homes.
Floods cause serious damage. Every year, losses caused by floods reach trillions of dollars. If you want to make sure that your property is protected when the next big storm hits, make sure you have enough flood insurance coverage.
As a general rule, to calculate the amount of coverage you need, find out how much it would cost you to rebuild your home. If the cost is below $250,000, a basic policy might be enough to cover your potential losses. However, if your home’s value is well above that, or if you just want more coverage, find a policy with higher coverage or get excess flood insurance to supplement the one you already have.
Check with multiple providers before making your choice to ensure you’re getting the policy that best fits your needs and requirements.