Do I Need Flood Insurance?

do I need flood insurance

Imagine a flood at your home right now. You’re probably thinking of an epic, biblical event! With chest-high waters and the neighbor’s dog swimming by, you turn and imagine your home being washed away by an ocean of water.

Sometimes floods look like that, but not every time. They’re usually more subtle. Even if you don’t think you live in a flood zone or cannot remember a flood ever happening there, a flood is still possible.

Any home in America can experience a flood. If it rains there, it can flood there.

So we’re going to explain what flood insurance is, why homeowners buy it, and why some mortgagees require it. We’ll explain a bit about flood zones and the National Flood Insurance Program (NFIP).

Do You Need Flood Insurance?

Flood insurance is not like auto insurance.

  • No state government in the US requires a homeowner to carry flood insurance.
  • The federal government requires it if you live in a flood disaster zone and have a federally-backed loan.
  • Your mortgagee (home loan lender) might require it, especially if you live in a 100-Year Floodplain (more on that in a moment).
  • If your lender requires flood insurance, they may request a policy through the National Flood Insurance Program (NFIP) specifically.

But even if your lender doesn’t require flood insurance, you might want to have it.

According to FEMA20% of damaging floods occur outside the high-risk flood zones, and a third of flood insurance claims come from low-risk areas.

  • Know that floods are the most common and costly natural disasters happening in the US.
  • Every year, floods do about 8.2 billion dollars in damages in the states.

So, while not always required, many customers purchase flood insurance for peace of mind it brings, in addition to their standard homeowners policy.

Does My Homeowners Insurance Policy Cover Flood?

No. Homeowners policies do not cover floods. 

  • Homeowners policies are built around fire coverage with added benefits like liability and theft coverage.
  • They seldom include flood coverage.

Why?

Because unlike a fire, which might damage one home or even a few city blocks, floods affect entire regions with long-lasting damages. After a home fire, an insurance company is on the hook to pay damages for a few hundred thousand or even a few million dollars.

But flood damages are far larger!

Think back to flood damage caused by Hurricane Katrina in 2005 as the ultimate example. According to CNN, the total losses were at least $160 billion. Insurance companies paid 1.7 million different claims, totaling 41 billion dollars in payments. It’s enough to put an insurance company out of business. That’s why most insurers don’t write this kind of policy.

Know that:

  • Your HO policy won’t cover a flood or the later damages caused by a flood, like mold.
  • But licensed insurance agents can still find flood insurance for you.
  • There are insurance companies that specialize in flood insurance and the National Flood Insurance Program (NFIP), which is a government program.

You can find flood insurance for practically any property, though the prices will vary based on your risk. As you might imagine, if you live in an area that’s prone to damaging floods, flood insurance is going to cost significantly more.

The National Flood Insurance Program (NFIP)

NFIP is associated with FEMA. Its purpose is to provide flood insurance for home and business owners and to help neighborhoods and communities mitigate flood risks. In addition to insurance, NFIP offers public education and resources to help neighborhoods prevent flood damage.

  • If your neighborhood is experiencing a flood right now, you won’t be able to purchase insurance against it.
  • Focus on your safety and try to save your valuables instead of calling for a flood quote during an actual flood incident.
  • Unfortunately, when floods happen, insurance agents receive a barrage of phone calls. But it’s frankly too late.
  • There may be a wait time between the day a flood happens, and the day you can start a new flood policy.

Remember, if you’re looking to purchase a home in a high-risk area, and you’re trying to get a federally backed loan, the bank will require you to get flood insurance.

What if I Live in a Low-Risk Area?

We must point out that “low risk” does not mean “no risk.” As insurance agents, we must make sure our customers are protected from disasters. Just because your bank may not require a flood policy doesn’t mean the property will never flood.

Nor does it mean you have a 100-year countdown until the next flood, after one happens. This is one of the most common misconceptions among customers as it relates to flood insurance, and we’re going to dispel it here. We’re talking about the poorly named “100-year flood zones.”

What is a 100-Year Floodplain / 100 Year Flood Zone?

Many first-time homebuyers, and even the most experienced investors, misunderstand the term 100-year flood zone.

The term 100-year floodplain wrongly implies that Mother Nature is sitting around counting down the years between floods in a neighborhood, or that a flood happens on your property roughly once every century. Unfortunately, that is not what it means.

Without getting overly technical, FEMA designates moderate-to-high risk flood areas as code A, and describes them as “100-year Floodplains”.

  • These places have roughly a 0.063 % chance of flooding annually. If we round that up — about a 1 in 100 chance of flooding in any given year.

To illustrate the idea, imagine rolling a 100-sided die on January 1 every year. If you roll the number 1, there’s going to be a flood. So there’s a 1 in 100 chance you’ll suffer a flood any year.

Now, the odds that the die will count down and display 100, 99, 98, 97 all the way down to 1 are incredibly minute. So, if it’s been 20 years since your last flood, that doesn’t mean you’ve got 80 years until your next one, as the name implies.

Instead, your yearly dice rolls will come up with random numbers — 64, 22, 79, and so on. But there’s always a 1 in 100 chance that this year will bring a flood. That 1 in 100 chance renews every year. You could even roll the dreaded 1 two years in a row.

But it’s easy to see why homebuyers misunderstand the phrase.

Know that ultimately, every property in America is at risk for flood.  Your need of flood insurance becomes a matter of how serious you consider the risk of a flood, how much it bothers you personally, and whether your lender requires flood insurance for your mortgage.

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