How Expensive is Flood Insurance?

All you need to know about Flood Insurance costs.

Flood insurance is a type of insurance that usually goes unnoticed. Although it usually comes with your typical homeowners insurance. However, for places that have a low flood risk, you might not get flood insurance with your homeowners insurance. But flood insurance is available to purchase separately as well.

What is Flood Insurance Coverage?

Flood insurance provides coverage for losses sustained by water damage. This water damage could be caused either by flooding, heavy or prolonged rain, melting snow, coastal storm surges, dam failure or blocked storm drainage systems. Although standard homeowners insurance covers any interior water damage due to a burst pipe or other natural disasters like tornadoes and rainstorms, flood insurance provides coverage for the destruction and damage caused by floodwaters. If you live in an area that is prone to flooding, you would usually need to get special coverage.

Understanding Flood Insurance

Flood insurance works just like any other insurance product. The policyholder is responsible for paying an annual premium. This premium is based on the property’s flood risk and the deductible they choose. If an external event like storms, rain, snow, collapsed or failed infrastructure leads to damage or destruction of the property or its contents, the insurance company is required to give the insured cash for the amount of money that is required to repair the damage. This also applies in the situation when rebuilding of the entire structure is required. Even though homeowners insurance does not require this, under a flood insurance policy, the insured has to purchase separate policies to cover a dwelling and its contents. You may also need to purchase a separate coverage rider in order to cover sewer backup if the backup was not caused by the rising floodwaters.

What is Private Flood Insurance?

Although The National Flood Insurance Program (NFIP) that is managed by the Federal Emergency Management Agency (FEMA) offers flood insurance to homeowners in participating communities, the actual insurance policies are issued by private insurance companies and not by the NFIP or FEMA.

However, private flood insurance can be a viable alternative to the government owned NFIP. Private insurance covers the damage and destruction caused by water damage from a flood to the structure of your home and its contents. The difference between private insurance and other types of flood insurance policies is that this does not have any backing from the federal government and is completely private owned. Whereas flood insurance that has federal backing is paid out by the government and uses taxpayer money to finance it.

While policies under the federal program are only able to pay out flood damage claims until they receive the funds to do so, private flood insurers rely on money collected from premiums to pay for damages.

It is important not to confuse private flood insurance with policies sold through the Write Your Own (WYO) Program which helps private insurance companies to write flood insurance in their own name. However, this does not mean that it is private insurance as it is still dictated and reinsured by the federal government. Thus, it is not the same as private flood insurance.

How Expensive is Flood Insurance?

It is usually the NIFP that regulates the pricing of flood insurance policies. Thus, it is likely that all flood insurance policies being offered to you do not have much of a difference in their pricing. To determine the cost of your policy, you would first need to find an insurance agent. If you live in a high flood risk zone or a community with the NFIP, the NFIP can find an insurance agent for you.

Once you have an insurance agent, they will look at the following factors to determine the cost of your flood insurance policy:

  1. Location of your home.
  2. Structure of your home.
  3. How near it is to water.
  4. Coverage option you have selected (Replacement cost value or actual cost value).

These factors can all impact pricing in a flood insurance policy. However, a lower cost flood insurance policy like a Preferred Risk Policy provides both building and contents coverage for homes and properties in areas with moderate-to-low risk for one price. Certain communities also offer qualifying discounts under the NFIP as well.

According to FEMA’s flood maps, flood insurance pricing is heavily influenced by the distance of your house from the water’s edge.

Benefits of Flood Insurance

Now that we know how expensive flood insurance is, many people would be put off from the idea of buying coverage. However, flood insurance is expensive for a reason. It can save you from major catastrophes and huge amounts of money paid in repairing, rebuilding or replacing. Here are five major benefits of having a flood insurance coverage policy:

  • It protects your property.

Flood insurance can save you from a lot of damage or destruction to your property. Especially if you own valuable items like paintings, jewelry, antique furniture, etc. You should not avoid purchasing coverage just because you may not be in a high risk zone. Statistics from the Federal Emergency Management Agency (FEMA) reveal that 20 percent of the flood claims come from homes outside of listed flood zones.

Many people also tend to mistakenly believe their homeowners insurance policy provides flood coverage as well when usually it is not the case. It is essential to discuss your coverage and your options with an insurance agent when purchasing your policy so you can be free of any confusion. In case your homeowners policy does not come with flood coverage, you can buy a separate personalized one that is according to your requirements.

  • It keeps your loved ones safe.

You should be careful and take a more proactive approach to make sure you have guaranteed your family’s safety should an unfortunate tragedy happen. There is nothing wrong with being safe, especially when the lives of your loved ones are in question.

  • It will improve your home’s value.

Having a flood insurance coverage policy can improve the value of your home. Even if you are not required to have flood coverage as you do not live in a high-risk flood zone, you should still secure essential flood coverage.

By having flood insurance, it shows that you care about your home and the community as a whole. The pride of ownership will not only increase the value of your home but also act as an example to make sure other people in the community also take the necessary steps in protecting their property and keeping their loved ones safe.

  • It provides ease and flexibility.

Some people tend to avoid buying flood insurance as they think it is too much of a hassle. However, this is all just a lie. The fact is, flood insurance is one of the insurance policies that are straight-forward while making sure your pockets are not completely empty by the time you are done. It is also a good investment as it can end up saving you thousands in repairing damages or replacement.

The best way to make sure you do not believe rumours is to meet up with an insurance agent who can help you separate fact from fiction and provide you with an insurance plan that has been tailor made to fit your needs.

  • It will give you peace of mind.

There is no comfort in living with fear. Whenever you would have severe weather or other types of disasters, your thoughts will automatically be consumed by the urge to keep your property and loved ones safe. You will also be wondering whether or not you could live in your house after the storm has passed?

To avoid all this anxiety and stress, you should have flood coverage so that you know you are in safe hands and your loved ones are well taken care of.

Who Needs Flood Insurance?

As said above, you should not avoid purchasing flood coverage just because you do not live in a high-risk flood zone since 20 percent of flood damage claims come from homes outside of flood zones. Which is why it is better to be protected and secure so you do not have to worry about your property, belongings or your loved ones every time a storm hits.

Besides that, it is a requirement for home buyers in Special Flood Hazard Areas, or SFHAs to purchase flood insurance by mortgage lenders. However, if you do not live in a flood zone and have a mortgage, you will not be required to buy flood insurance. Although, according to the Insurance Information Institute, more than one-fifth of claims for flood damage come from homes that are in low-to-moderate risk areas, the same households that are not required to purchase flood insurance by lenders.

It is important for everyone to at least consider getting flood insurance. You never know when you might need it. Even one inch of water can cause $25,000 worth of damage. And as the experts at the NFIP say, “Everyone lives in a flood zone.”

Moreover, without insurance, you will be subjected to the federal government’s low-interest loans that usually take the form of disaster relief from floods. And since these loans must be paid back, purchasing a flood insurance policy is the only way to protect yourself from any flood-related costs.

The Bottom Line

The bottom line is, we know how expensive flood insurance is. But what we also know is how badly it is needed. And not just for people who live in a high-risk flood zone but also for people outside of these flood zones.

Nabeel Ahmad

Nabeel Ahmad

Nabeel Ahmad is the founder and editor-in-chief of Insurance Noon. Apart from Insurance Noon, he is a serial entrepreneur, and has founded multiple successful companies in different industries.

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