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Flood Insurance Guide: Everything You Need to Know

Read Time: 11 mins

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Flooding is arguably the most common peril American homeowners face. Almost every area of the country has experienced flooding to some degree over the last 30 years. This common peril can cause extensive and costly damage that can leave homeowners reeling to salvage their homes and recoup their losses.

Because flooding is so common and so costly, insurance companies never offer coverage for it as part of a standard home insurance policy. Homeowners must seek out flooding insurance separately in order to obtain coverage for it. It takes some work to find an option available, especially in areas that are high-risk flood zones, but luckily there are options available. In this article, we will guide you through the ins and outs of flood insurance.

Key facts
  • Flooding coverage is never included in a standard home insurance policy and must be purchased separately
  • Flood insurance covers a homeowners dwelling and belongings up to the limits stated in the policy, but may not cover other structures on the property
  • While some private flood insurance options may be available, most people have to go through the National Flood Insurance Program to obtain flood insurance coverage

What is flood insurance?

Flood insurance is an insurance policy that covers your home and your personal belongings that are damaged in a flood. Flood insurance must be purchased as a standalone policy as it is never included in a standard home insurance policy. There are some private options available depending on a homeowner’s location, but in most cases, homeowners must go through the National Flood Insurance Program (NFIP) in order to purchase a flood insurance policy.

Flood insurance covers any flood damage that occurs whether it is due to a storm surge, an overflow of a lake or river, or a flash flood among other causes of flooding. There is a limitation as to when the flooding can occur. When a homeowner initially purchases a flood insurance policy there is a waiting period for the coverage to go into effect. When a policy is purchased through the NFIP there is a 30-day waiting period before the coverage becomes active. If flooding occurs within the first 30 days it will not be covered. Private insurers that offer flood insurance may have different waiting periods. Most have shorter or no waiting periods.

Policies purchased through the NFIP are capped out at $250,000 of insurance protection. For some homeowners, this may be more than enough coverage, but for others, it may not be nearly enough. If NFIP’s coverage limit is insufficient, homeowners may be able to purchase additional flood insurance through a private insurer to sit on top of their NFIP policy.

What flood insurance covers

Flood insurance essentially has two sections: dwelling coverage and personal belongings coverage. Homeowners may also have the ability to purchase a flood insurance policy that is dwelling-only coverage or personal belongings coverage only if they so choose.

Dwelling coverage

Dwelling coverage is designed to protect the structure of the home and any attached structures. The NFIP limits their coverage to $250,000 for a dwelling. This may not be enough for some homeowners. At this point, a homeowner could turn back to the private market where some companies may offer dwelling coverage for flooding as high as $5 million.

Personal belongings coverage

Personal belongings or contents coverage is designed to protect all of the homeowners’ belongings inside the home such as furniture, clothing, electronics, and more. Many belongings can easily be ruined by flooding, so this is an important protection. The NFIP limits their personal belongings coverage to $100,000. Again, this may not be enough protection for some homeowners. There are some private insurers that may provide personal belongings coverage up to $1 million. 

What flood insurance does not cover

Flood insurance surprisingly does not cover every form of water damage nor does it cover all sections of coverage that a standard home insurance policy covers. Some common instances where flood insurance will not provide protection to the homeowner include:

  • Water damage due to burst pipes (this is something that is typically covered under a standard home insurance policy)
  • Personal property not inside the home (including detached structures such as a swimming pool, or shed)
  • Mold and mildew that could have otherwise been prevented
  • Additional living expenses incurred while the home is being repaired or rebuilt
  • Damage to a car

Is flood insurance required?

Flood insurance, just like home insurance in general, is not required by law. In most cases, mortgage lenders don’t require flood insurance either, but some mortgage lenders will require you to obtain flood insurance. A mortgage lender will most likely require a homeowner to purchase flood insurance when the home is located in a high-risk flood area. If you are concerned about the risk of your home flooding, you should look into flood insurance even if it is not required. Flooding is one of the most expensive causes of damage. 

If you don’t have flood insurance and flooding causes damage to your home, you may still get some relief if the federal government declares a federal disaster. You also might have the option to obtain a loan through the disaster loan program administered by the Small Business Administration. Even with a loan or federal aid, you may not be able to get enough financial assistance to pay for the entire extent of the damage. It is worthwhile to look into flood insurance options for your home whether coverage is required or not.

What is the cost of flood insurance?

There are a number of factors that go into the cost of flood insurance including location, age of the home, size of the home, and if the home is in a high-risk flood area. The national average for the cost of a flood insurance policy through the NFIP is roughly $860 per year according to Forbes with some states having a much higher average and others a much lower average. 

The cost of not purchasing flood insurance could be far greater than the $860 per year premium. According to FEMA, in 2019 the average claim paid out through the NFIP was about $52,000, a pretty good trade-off for $860 per year. If you were a homeowner who didn’t have flood insurance, while you paid $0 in insurance premiums, you are now paying $52,000 out of pocket to repair your damaged home. A far worse trade-off.

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How can I get flood insurance at a lower cost?

The cost of flood insurance can be prohibitively expensive for some homeowners, but there are steps that can be taken in order to lower your flood insurance premium.

  1. Opt for a higher deductible. One easy way to lower your flood insurance premium is to opt for a higher deductible. This means choosing to be on the hook for a higher amount before insurance coverage will kick in. For example, say the normal deductible is $1,000 for your flood insurance policy, but you opt for a $5,000 deductible on the policy. This will lower the cost of the policy. FEMA, which runs the NFIP, actually offers a 40% discount on flood insurance policy premiums if the homeowner chooses a $10,000 deductible, that can save you quite a bit of money in insurance premiums, but of course, leaves you open to a higher out of pocket cost if flooding occurs.
  2. Minimize the risk of flooding. You may be eligible for a premium discount if you take preventive measures to minimize the risk of flood damage occurring. Some examples of measures you could take include, installing flood openings or elevating appliances or other equipment above the ground.
  3. Obtain an elevation certificate. You can potentially get a discount on your flood insurance premium by getting an elevation certificate showing that your first floor is above the level of the first floor determined by FEMA.
  4. Get a community discount. There are thousands of communities around the country where homeowners of the community qualify for a discount on a flood insurance policy premium through the NFIP due to the community as a whole being rated highly for putting in preventive flood measures. If you are looking at flood insurance it is worth asking your insurance agent if the community you live in is participating in the Community Rating System.
  5. Look at all flood insurance options. While most people get their flood insurance through the NFIP, it is important to shop around to compare options that may be available. There may be a private insurer that provides more flood insurance coverage at a cheaper price.

Flood insurance through the National Flood Insurance Program (NFIP)

The NFIP considers a flood to be “an excess of water on land that is normally dry, affecting two or more acres of land or two or more properties”, That is not a large requirement to be considered a flood, but you must meet that definition in order to have any chance of your claim being approved under the NFIP.

Turning to the NFIP is the only option for most homeowners looking to purchase flood insurance. The NFIP is backed by the federal government and administered through FEMA. Through the program you actually do obtain coverage through a private insurer, but with the program being the entity at risk. The waiting period is always 30 days, so if you are worried about an impending storm headed your way, it is probably too late to purchase flood insurance. 

Another important note when purchasing flood insurance through the NFIP is that you typically have the option to choose which type of reimbursement coverage you want for the dwelling portion of coverage. You can either choose actual cash value coverage or replacement cost coverage. Actual cash value coverage is cheaper because it factors in depreciation leading to a lower amount of protection as time goes on. Replacement cost value will provide more protection to the homeowner in the long run but will also cost more.

Unfortunately, there is no option for the reimbursement type when it comes to the personal belongings portion of coverage. Personal belongings will always be reimbursed on an actual cash value basis. This means that you may have essentially no coverage for some of your belongings after many years.

FEMA’s 2.0 version of risk rating for flood insurance

FEMA historically has used “flood zones” to help determine the premium prices for specific flood insurance policies, but this came with its own problems. Many homes were classified under the wrong zone, which has been the largest reason why the NFIP currently has over $20 billion in debt. 

FEMA has since created version 2.0 for the risk rating system that takes into account better technology, data, and understanding. This current version is the only risk rating version used now by FEMA for the program. The 2.0 version considers factors on a more granular level, looking at features of individual properties, what it would cost to replace the home, the home’s distance from any sort of body of water, and what may be the cause of a flood in any particular area. For some homeowners this may make their policy more expensive than it would have been under the old version, but for many, it will provide a much more accurate and fair premium price for flood insurance coverage on their home.

Private flood insurance

Private flood insurance is a very small portion of the flood insurance market. It only makes up less than 5% of all the flood policies sold. In many cases, private flood insurance simply isn’t an option for a homeowner in a particular area. The market for flood insurance is extremely small and typically won’t be offered in the most flood-prone areas of the country. Private flood insurance does typically provide better coverage overall compared to coverage under the NFIP. Private insurers typically require a shorter waiting period or none at all as well as higher coverage limits.


Flood insurance options are small but may be important for you to consider when purchasing a home as flooding is one of the most common and costly causes of damage around the country.

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Kyle has extensive background in financial planning and financial writing. He is an expert in home, auto and life insurance. Kyle holds a Bachelor's degree in Business Administration from San Diego State University and multiple financial planning designations.

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