Flood Insurance: What is Flood Insurance?
Flood insurance is a type of property insurance. It is a separate policy that goes beyond the usual coverages provided by a homeowners policy, landlord protector, or commercial insurance policy. Flood insurance serves to protect the structure and personal/business property from the specific perils of coastal flooding, flash flooding, groundwater flooding and so on.
If a homebuyer is considering a property in a Special Flood Hazard Area (“SFHA” or “100-Year Floodplain”) the mortgagee may require flood insurance, in addition to a standard homeowners policy.
Does a Homeowners Insurance Policy Cover Flood?
No. Most homeowner’s policies don’t include flood coverage. Homeowners insurance is built upon fire coverage, plus coverage for perils such as wind, hail, lightning, and civil unrest (riots). A traditional homeowner’s policy does not cover floods.
HO policies do cover some water damage not caused directly by floods:
- Sewer backup
- Equipment malfunction
- Broken water pipes
But homeowner’s insurance won’t cover the significant damages caused by a river overflowing, tidal wave or regional flooding caused by a severe storm.
Do You Need Flood Insurance?
Sometimes a mortgagee (the bank or lienholder) will require a home buyer to maintain flood insurance on a property. If you’re real estate shopping, and your lender requires flood insurance, then yes, you must carry it throughout the entire mortgage.
- When signing a 30-year note, the buyer must renew the flood insurance policy every year for the next three decades, or until the mortgage is paid in full.
- Federally backed loans – like VA loans, Fannie Mae or Freddie Mac loans – will require flood insurance if the property is in a known flood risk area or a “100-Year Floodplain”.
If a property isn’t located in a high-risk floodplain, property owners still benefit from a flood insurance policy.
Homeowners can purchase flood insurance even if:
- The lender doesn’t require it
- The home is paid for
- The property was inherited or “gifted” by a family member.
Also, a property held in trust can be insured against flood. If you need more information regarding flood insurance, please check our article Do I Need Flood Insurance?
The FEMA Flood Zone Map, SFHAs and 100-Year Floodplains
The US Federal Emergency Management Agency (FEMA) has mapped most of the continental US for flood risks. FEMA also states that homeowners in low-risk areas still face the reality of flood damage every year. According to FEMA, floods are five times more likely to damage your home than fire, even in a low-risk area.
Visit FEMA’s Interactive Flood Zone Map
Flood Zones are recognized areas of land that experience a risk of flooding. Every property in the United States is at some risk of flooding.
The question is – how much of a risk?
FEMA uses complicated statistics and research to calculate flood risk. This information can include a property’s slopes and inclines, historical instances of flooding, year rainfall, elevation, weather patterns, and past flood insurance claims.
Can You Buy Flood Insurance if You’ve Had a Flood Claim in the Past? Yes. Though past flood claims could affect premium pricing.
100-Year Floodplains (also called 100-year flood zones) are areas that experience about a 1% chance of flooding every year.
- This term is often misunderstood by homeowners and leads them to believe they may not need flood insurance.
- If a property suffered flood damage 25 years ago, this doesn’t mean the property has 75 years until the next flood.
- Instead, there is a 1 in 100 chance this property will experience a flood every year.
- Properties in a “100-year flood zone” can (and do) flood two or three years in a row.
Do You Need Flood Insurance if You Own a Home Outright?
No state or federal government agency requires property owners to maintain flood insurance at a property if there’s no mortgage. Still, many homeowners sleep better at night knowing they’ve mitigated the risks of flood damage.
One can purchase flood insurance through the National Flood Insurance Program (NFIP), a federal program created by FEMA in 1968. One can also find coverage on the private flood insurance market.
How Flood Insurance Works
Flood policies are sold through licensed insurance agents. If the policy is from NFIP, the rates will be identical no matter where you purchase it. If the flood insurance quotes come from an EINSURANCE partner-provider there may be differences in your price.
Under NFIP policies, homes can be insured for as much as $250,000, and personal belonging (contents) for up to $100,000. This totals $350,000 in flood coverage.
- Renters can buy $100,000 of flood insurance for personal belongings, but cannot purchase coverage on a structure they don’t own.
Flood insurance policies offer separate deductibles for the building and its contents. Homeowners choose the deductible amount, but if there is a mortgagee (bank or lienholder) involved, they may require a specific deductible. This prevents the lienholder from taking a significant loss should the property flood.
Flood insurance deductibles range from $1,000 to $10,000. As with other types of property insurance, higher deductibles result in lower premiums.
A Tale of Two Deductibles
To illustrate by example, imagine two home buyers purchasing identical spec homes in a new development. They both pay exactly $200,000 CASH for the houses. There is no lender involved, and these properties are located in a floodplain.
Homeowner A purchases flood insurance with a $10,000 deductible. Homeowner B chooses a $1,000 deductible.
A few years go by. Homeowner A spends much less on his flood insurance premiums. But then disaster strikes. The area floods and both homeowners take a complete loss as their homes are nearly washed away by a few feet of water.
Flood insurance will pay Homeowner A the value of his home minus the deductible, so that’s $190,000.
Homeowner B files a flood claim with his small deductible of $1,000 and gets a check for $199,000.
Can I Buy Flood Insurance Today?
Flood insurance from NFIP has a 30-day waiting period before the coverage kicks in. To put it another way, one cannot purchase flood insurance a day before a hurricane hits the area. However, there are a few exceptions:
- If the policy already exists at this property and is being renewed with increased coverages.
- If the property is affected by flooding on burned federal land, and the policy is purchased within 60 days of the fire’s containment.
- If the property is in escrow with a federally-backed loan (VA, Freddie Mac & Fannie Mae) that requires flood coverage to close escrow.
Comparing Flood Insurance Quotes
When looking for flood insurance quotes, one must provide most of the same information as a standard homeowner’s policy, such as property address, square footage, foundation type (basement or slab), lienholder information and the like.
Additionally, one might need to provide slope or incline information, distance from a body of water, and flood zone specifics. Much of this can be found on the interactive FEMA flood zone map linked above.
Most property insurance providers don’t offer flood insurance policies, so they aren’t usually “bundled” like auto / home households. However, nearly every property insurer will offer a meaningful discount on a homeowner’s policy if there is an additional flood policy.