Your Flood Insurance Q&A Guide

16 Jul
Home Insurance adjuster examining flood damage in the aftermath of Hurricane Sandy on November 11, 2012 in Far Rockaway, NY

Floods are both the most common and most expensive natural disaster that hit the United States. According to the Federal Emergency Management Agency (FEMA), flood damage ends up costing an average of $8.2 billion every year. 

Flood damage can run up to $27,000 if just one inch of water gets in your house and you don’t have to be located in a high-risk flood zone to have flooding issues, over 20 percent of flood insurance claims are in low to moderate flood zones. 

The bad news is that most standard homeowner policies do not cover flood damage. This includes renters and condo insurance. If you have concerns about flooding it is necessary to put a separate flood insurance policy in place. 

While private insurance companies have gotten into the flood insurance markets lately, the majority of residential flood insurance is sold through the National Flood Insurance Program (NFIP). The NFIP was created in 1968 and is currently managed by FEMA. The NFIP has more than five million policies in force across the nation.

If you are in need of flood insurance and are looking at NFIP policies, this overview should give you all the information you need to successfully protect your home from flooding. 

Do I Need Flood Insurance?

If your home is located in a high-risk zone according to FEMA flood maps and you have a government backed mortgage (think Freddie Mac, Fannie Mae, VA FHA) you are required to carry flood insurance. 

Government requirements don’t end there. If you live in a high-risk area and have received federal assistance such as FEMA grants or loans from the Disaster Loan Plan of the U.S. Small Business Administration, you are required to carry flood insurance if you want to stay eligible for future federal disaster aid. 

Finally, if you live in a high-risk flood area or even a moderate risk area and have any type of mortgage on your home, your lender will most likely require that you carry flood insurance in order to protect the investment they have in your home. Lenders can require flood insurance regardless of where your home is located if they have concerned about flooding issues. 

FEMA Flood Maps Explained?

FEMA publishes flood maps that are known as “Flood Insurance Rate Maps” (FIRM) which show areas of the various flood risks to a particular area. They break out the risk as high, moderate and low. These maps are used by mortgage lenders to determine if the homebuyer needs to carry flood insurance and FEMA uses the maps to help set premiums for flood insurance.

These maps are updated on a regular basis, taking into account these factors:

  • Weather patterns
  • Erosion
  • Any new developments such as houses or other buildings

FEMA has a site set up that lets you check your address to see where you fall on the flooding risk scale. 

What Does NFIP Flood Insurance Cover?

A NFIP policy offers two different coverages, dwelling and contents. This means that the structure of your home is covered as well as your personal property inside the home. It is also possible to buy a policy that only protects your dwelling or only your contents.

NFIP policies do come with coverage caps. The cap for dwelling coverage is $250,000 so if it would cost more than that to rebuild your home you may need to supplement your NFIP coverage. Personal contents coverage is capped at $100,000.

Coverage does vary between elevated floors and areas that fall below the lowest elevated floors, like basements, crawlspaces, as well as walkout basements.

 Coverage on elevated floors includes items such as:

  • Central air conditioning and other mechanicals
  • Detached garages and outbuildings
  • Electrical systems
  • Foundation walls, staircases
  • Fuel tanks, well water tanks and related pumps
  • Furnaces and water heaters
  • Built in bookcases, cabinets and paneling
  • Permanently installed carpeting
  • Plumbing systems
  • Refrigerator, cooking stoves and other appliances
  • Solar energy equipment
  • Window coverings

The dwelling coverage for areas underground is not as comprehensive as coverage for the upstairs portion of the home. While it covers the walls and mechanicals of the house it leaves out most personal property and even carpet. Dwelling coverage for basements includes items such as:

  • Central air conditioners
  • Drywall for walls and ceilings
  • Electrical outlets, switches and circuit breaker boxes
  • Foundation walls, anchorage systems and staircases attached to the building
  • Fuel tanks and the fuel in them
  • Furnaces, hot water heaters, heat pumps and sump pumps
  • Nonflammable insulation
  • Solar energy equipment
  • Well water tanks and pumps

It does exclude coverage for these items on the basement level:

  • Bookcases, paneling and window treatments 
  • Carpeting, area carpets and other floor coverings
  • Walls and ceilings not made of drywall
  • The majority of your personal property
  • Electronic equipment
  • Furniture

When it comes to personal contents coverage, most things above ground are protected but your contents in the basement are usually not protected by a NFIP policy. Here is an overview of a few things that are covered and contents that are not protected:

Contents covered on upper levels:

  • Personal belongings, clothes, electronics furniture
  • Curtains and other window coverings
  • Microwave oven and other appliances
  • Portable and window air conditioners
  • High end items such as jewelry, art collectibles (coverage is capped at $2,500)
  • Washer and dryer

Contents covered for basements:

  • Food freezers and the food in them
  • Portable and window air conditioners
  • Washers and dryers

What is Excluded From a NFIP Flood Insurance Policy?

There are definitely exclusions with a NFIP policy. While it does cover damage that is directly caused by a flood it may exclude other water damage. Flood is defined in the policy as “an excess of water on land that is normally dry, affecting two or more acres of land or two or more properties.”

Sewer backups and other water damage would not be covered by your policy unless it was the direct result of flooding. Here is a list of other exclusions that come with a NFIP policy:

  • Cars and other vehicles
  • Currency, precious metals, stock certificates 
  • Financial losses caused by business interruption
  • Personal property kept in basements
  • Property outside of the insured building. Items such as landscaping, wells, septic systems, decks/patios, fences, seawalls, hot tubs and swimming pools are excluded
  • These policies do not offer additional living expenses coverage

Where Can I Get a FEMA Policy?

If you own a home or rent a place in an area that participates in the National Flood Insurance Program you can purchase a policy. If you are unsure if your community falls into that category call your local insurance agent who should be able to advise you in regards to flood insurance. 

The NFIP does not sell flood insurance directly, it is sold through participating agents or by an insurance company that sells NFIP flood policies. If your area does not participate in the NFIP you will have to look at private flood insurance. Flood insurance in the private market doesn’t come with many of the restrictions of a NFIP policy but they are often more expensive. 

What Does FEMA Flood Insurance Cost?

Pricing will vary depending on your specific factors but in general, the average cost of NFIP flood insurance is roughly $400 a year for every $100,000 in coverage. According to data from the NFIP the average amount of flood coverage was $257,000 with an average premium of $642 a year. 

Your policy premium will be influenced by the following factors:

  • Flood risk of your area based on flood maps
  • Type and amount of coverage you are buying 
  • Deductible you choose
  • Location of your house

Age and design of the building and material it is built from

How to Lower the Cost of Flood Insurance?

Flood insurance can be pricey but if your home is severely damaged due to flooding, it can be a financial lifesaver. Here are a few tips to help lower your flood insurance costs:

  • Elevate Your Mechanical Systems if Possible: Getting your heating/cooling systems as well as electrical panels and water heaters off the ground can prevent flood damage and result in a discount on your insurance.
  • Fill in Basements: While this may seem extreme, if you don’t use your basement often it my make sense to get rid of it. Homeowners with basements pay roughly 15% to 20% more for flood insurance.
  • Elevate Your Home: If you can elevate your home it could end up saving a significant amount of money on flood insurance coverage. You will need an elevation certificate to show your insurance agent when purchasing your coverage.
  • Choose a Higher Deductible: The higher your deductible, the lower your premium. NFIP flood policies have a separate deductible for dwelling and contents coverage. If both your dwelling and contents are damaged you will have to pay both deductibles when making a claim. Deductible amounts range from $1,000 to $10,000 but make sure you can easily cover the deductible in the event you have to make a claim. 

Waiting Period for NFIP Flood Insurance: Most flood insurance policies come with a waiting period and the NFIP policies are no exception. There is a 30-day waiting period from the policy’s date of purchase until it goes into effect. There are exceptions but they are pretty specific and in most cases,  you will need to be already carrying a NFIP policy for the waiting period to be waived. Do not wait until a storm is bearing down on your home to shop for coverage, by then it will be too late. 

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