You’ve purchased flood insurance and properly protected your home and your assets in the event of a flood. Now, if a flood comes along and destroys your belongings and your property, your insurance will cover the complete costs of repairs, right?
Not entirely – it all depends on how much you’ve put down for your flood insurance deductible. Basically, your flood insurance deductible is the amount of money you put down in case a flood comes in and wreaks havoc on your home. Your insurance company will cover any repair costs remaining after your deductible has been used up.
What’s the point of a flood insurance deductible if you have insurance? Well the more you put down for your deductible, the lower your yearly flood insurance will be. Finding the right amount to put down to cover your home can save you money in the long run.
What is a flood insurance deductible
Many factors go into increasing your insurance premiums such as where your home is located, it’s susceptibility to flood damage and your home’s age. None of these factors can be changed which will make your insurance rates increase year to year. What you can change that will help decrease your premiums, is your flood insurance deductible.
As previously mentioned, your flood insurance deductible is the amount of money you put down as a repair and replace fund in case of a flood. This amount will be used to cover the costs of repairs on your home and once it’s depleted, your insurance claim will cover the remaining amount.
Flood insurance deductibles are separated into two categories: Building and contents.
Building deductibles
This deductible will go towards repairing damages caused to your home and the foundation. If your home is hurt in a flood, your insurance will use the money in this deductible before covering the cost of repairs.
Contents deductibles
This deductible is used to protect any of your property within the home that may be destroyed and need replacing. If your belongings are ruined by a flood, your insurance company will use this to cover the cost of repairs.
Your insurance company will use your deductible initially and then pay the rest for the repairs. If your insurance policy has a $2,500 building deductible and a $2,000 contents deductible, your insurance company will use those funds first. If the damages were $6,000 and $2,500 respectively, your insurance would pay $3,500 for building repairs and $500 for contents.
With a flood insurance deductible your insurance company prevents themselves from having to pay the full price for repair costs. It’s not all one-sided, though, as the higher your deductible, the lower your insurance premiums.
How your deductible will affect your insurance coverage
If you have a flood insurance policy that requires from you a $5,000 building deductible and a $3,000 contents deductible, your yearly rates are going to be lower than someone who has a smaller deductible. The higher your deductible, the lower your insurance rates.
The reverse is true as the lower your deductible, the higher your insurance rates. In the end it all comes down to what is the smarter financial decision for you. You can either pay more yearly for insurance or put down more money in your deductible. Analyze your situation to see which makes most sense for you.
NFIP and FEMA maximum flood insurance deductibles
The only maximum you will face from the National Flood Insurance Program (NFIP) will be the amount off of your premium. Flood insurance deductibles will take a percentage off of your insurance premium ranging anywhere from 0%-40%.
This means that the maximum amount off of your insurance premium is 40% which correlates to a deductible of $10,000 for the NFIP. You can put your deductible rather high if you feel that is what’s best for you, lowering your insurance rates by almost half! Again, research your situation to know if a higher deductible will be the smarter course. The more floods you have, the more your deductible will be used rather than your insurance.
