How Flood Insurance Works: A Coverage & Savings Guide

Flood damage is one of the most expensive forms of property damage, and it’s common. In addition to warping and destroying property, flood damage can cause other problems, like rot and mold. In the worst cases, flood damage can destroy your home and everything in it.

That’s why flood insurance is so important. Millions of homeowners carry policies in the U.S. And, due to many factors caused by climate change, flooding is becoming more common in almost all areas of the country.

This article will show you exactly how flood insurance works —what’s covered, what’s excluded, what to expect when you have a claim, and how to save on your policy.

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What Is Flood Insurance?

Flood insurance is property insurance that protects your home and personal belongings from flood damage. Flood damage is caused when water overflows typically dry land. Sometimes, this results in minor water accumulation in a basement, but sometimes, it can be a more severe issue.

Sometimes, floodwaters create mudslides or mudflows. These are also considered floods and are covered by flood insurance.

Are Floods Covered by a Standard Homeowners Insurance Policy?

No. Water damage and other damages caused by flooding are not covered by a standard home insurance policy. You need to purchase a separate flood insurance policy to get flood coverage. Often, you can purchase this policy through the same insurer that you purchase your home insurance policy. And you can pay your premiums through an escrow account.

How Does Flood Insurance Work?

When you suffer property damage as a direct result of a flood, your flood insurance policy covers the cost of your losses (minus your deductible ). Most homeowners purchase a flood insurance policy backed by the federal government through the National Flood Insurance Program ( NFIP ).

The NFIP is part of the Federal Emergency Management Agency ( FEMA ), but the two should not be confused. FEMA organizes government response to declared disasters, including natural disasters like floods.

FEMA sometimes offers small payouts to property owners. The average payout from FEMA is $7,000 to $8,000, while flood insurance will cover you up to your coverage limits.

What’s Covered by Flood Insurance?

Flood insurance policies are made up of two parts: building coverage and contents coverage. Building coverage is mandatory with any flood insurance policy for homeowners. It covers:

• Detached garages

• Foundation walls

• Staircases

• Anchorage systems

• Solar equipment

• Fuel tanks

• Sump pumps

• Well-water tanks and pumps

• Water heaters

• Electric and plumbing systems

• Refrigerators, stoves, and dishwashers

• Built-in bookcases, paneling, and cabinets

• Permanent air conditioners

• Permanent carpeting

Contents coverage is optional but highly recommended. It covers:

• Portable air conditioners

• Non-permanent carpeting

• Washer, dryer, and microwave

• Furniture, electronics, and artwork

• Clothing, furs, and jewelry

You should note that you have the choice to cover your property for actual cash value (ACV) or replacement cost value (RCV). With ACV coverage, you’re covered for the value of your property minus depreciation and your deductible.

With RCV, you’re covered for the cost to replace your property minus your deductible only. When possible, we recommend purchasing an RCV policy.

What’s Not Covered by Flood Insurance?

First, flood insurance does not cover you for water damage that isn’t caused by flooding. A broken sump pump, for example, will not be covered. You also won’t be covered for flood damage resulting from negligence, such as leaving a window open during a storm.

Some property and property losses are almost never covered by a flood insurance policy unless you have a special rider. This includes:

• Currency and precious metals

• Stock certificates and other documents

• Personal property kept in crawl spaces or basements

• Business losses caused by flooding

• Cars, trucks, and other vehicles

• Landscaping and fencing

• Patios and decks

• Swimming pools and hot tubs

• Seawalls

• Septic systems

• Additional living expenses (ALE)

Additional living expenses (ALE) are an important exclusion. ALE covers the additional costs of living temporarily outside your home. This includes hotel or other temporary housing costs, plus pet service, fuel, and laundry costs. We recommend adding ALE coverage to your plan.

Finally, to cover vehicles, you will need an auto insurance policy that covers flood damage. This is often covered by the comprehensive coverage portion of a policy, which is optional.

Flood Insurance Coverage Limits

The flood insurance limits with NFIP policies are $250,000 for building coverage and $100,000 for property coverage. Remember that your policy covers you for the value of repairing or replacing your property— not the market value of your home. Your home’s market value is what your home would sell for in a real estate transaction.

Some properties will exceed these coverage limits. These could be large homes, homes with luxury finishings, or homes with other special features that make them more expensive to rebuild. Some people may have personal property that exceeds the contents limits.

In this case, property owners should purchase additional flood insurance coverage through a private flood insurance provider.

How Does Flood Insurance Pay Out?

Flood insurance pays out when you submit a covered flood claim. To submit a claim, contact your insurance provider as soon as possible. If the flood is a declared disaster, your provider may set up a special customer service line to process claims.

When speaking to your insurance provider, ask about:

• How long you have to submit the claim

• Whether the claim will exceed your deductible

• How long the claims process will take

• Whether you need to submit an estimate for repairs

After you get the information you need, you should also address clean-up as soon as it’s safe to do so. Removing excess water and debris, running a dehumidifier, and cleaning with bleach makes it less likely that further damage will occur. It also reduces the chances of mold, mildew, and rot.

What’s the Cost of Flood Insurance?

Most homeowners pay between $750 and $1,200 a year for flood insurance in higher-risk areas, depending on where they live. For some, the cost of flood insurance will be as high as $2,200. Others may pay less than $300 a year.

The cost of flood insurance depends on a number of factors, including:

• The size of the property

• The location of the property

• The value of the home’s finishings

• The value of personal property

• The amount of coverage you purchase

Some homeowners may also have access to certain subsidies that lower their rates.

Flood Insurance Deductibles

The minimum deductible for NFIP insurance is:

• $1,000 for building coverage of $100,000 or less

• $1,250 for building coverage over $100,000

However, you can raise your deductible to receive a discount on your policy. The highest you can set your deductible is $10,000. This gives you a 40 percent discount on your policy, or approximately $320 to $400 annually.

The savings may not be worth it for many homeowners. Never set a deductible higher than what you can reasonably cover in the event of a claim.

How to Tell If I Need Flood Insurance

Mortgage lenders require homeowners with mortgaged properties in high-risk flood zones to carry flood insurance. These flood zones are also called Special Flood Hazard Areas (SFHAs). Typically, these areas fall into traditional floodplains or coastal areas affected by storm surge.

Lenders may or may not require homeowners with mortgaged properties in moderate-risk areas to carry a policy. In fact, 40 percent of flood insurance claims come from property owners outside of high-risk flood zones.

But even when these homeowners are not required to do so, they should still carry a flood insurance policy. That’s because even minor flood damage is expensive. Just a few inches of water can cause tens of thousands of dollars of damage to the average-sized home.

Homeowners in low-risk areas can make a risk assessment based on the specifics of their area. Some areas are higher-risk than FEMA has designated. Most areas of the country have experienced heavier rains and other adverse weather patterns that create floods.

Even areas of extreme drought are at risk. When heavy rains occur in an area experiencing drought, flash floods happen more easily. That’s because there is less vegetation to help regulate the water table levels.

How Do I Know Which Flood Zone I’m In?

You can find your flood zone in a few ways. First, you can get a flood insurance rate map (FIRM) through the NFIP. You can also look up your community’s flood map at FloodSmart.gov.

How to Get Flood Insurance

There are a few ways to purchase a flood insurance policy. The most common way is to purchase an NFIP -backed policy through a local insurance company. Purchasing your policy with the same provider that you purchase home insurance makes things easier. You can pay both premiums at the same time, in one bill.

However, you can buy your NFIP policy through a different provider. You can also purchase private flood insurance either in lieu of your NFIP policy or in addition to it. Private flood insurance policies tend to have more flexibility by way of coverage options and coverage limits.

You can purchase these policies with private insurance companies that specialize in flood coverage. Private insurers who can offer such policies include:

• Neptune Flood

• Better Flood Insurance

• Assurant

• Johnson & Johnson Insurance

• The Flood Insurance Agency

• FloodSimple Insurance Services

Finally, you should note that when you buy your policy, you are typically subject to a 30-day waiting period unless you just purchased your home or your home’s flood zone has been recently changed.

Frequently Asked Questions

Saving on Flood Insurance Is Always Possible

There’s no denying that flood insurance, especially in high-risk areas, is expensive. However, there are many ways to lower your costs. Here are some ideas to get you started:

• Participate in discount programs offered by your insurance provider.

• Raise your deductible so long as you have emergency savings that can cover it.

• Renovate with flood-resistant home features.

• Invest in landscaping that provides flood protection.

• Ensure the ground is graded away from your home.

• Elevate basement appliances and home systems.

• Store personal belongings on shelving or in your attic.

• Compare flood insurance quotes before you buy and after to ensure you’re getting the best rate.

Although NFIP policies are all backed by the same organization, different insurance companies can charge different costs for servicing the policy. That’s because every company has different overhead costs for doing business.

That’s why you should always compare rates before you buy. And because rates can change from month to month, you should schedule time to check your rate regularly, at least every six months.

Insurify can help. One form allows you to compare insurance policies from top companies in your area. Our tool is free and confidential—only buy if the price is right. Still have questions? Speak with one of our qualified insurance agents. Savings are waiting for you. Try it today!