Home Insurance and Flood Damage

Does Homeowner Insurance cover Flood Damage?

Flood insurance can be a complicated and confusing insurance coverage. Research shows that many homeowners are uncertain about whether or not homeowners insurance will cover flood damage.

 

A 2013 survey done by Allstate found that 44 percent of respondents believed they were covered for weather-related flood damage despite the fact that only 15 percent of respondents had actually purchased a flood insurance policy through the National Flood Insurance Program (NFIP).

 

Just to set the record straight, damage caused by flooding is not covered by a standard homeowners policy and in order to be fully protected against flood damage you must carry a separate flood insurance policy.

 

While flood insurance can be expensive, especially if you live waterfront, it can literally be a financial lifesaver if your home is damaged or destroyed by flooding.

 

Does Homeowners Insurance Cover Flood Damage?

Standard homeowners insurance does not cover damage that is caused by flooding or floodwaters. If your home, or a home you are considering purchasing is in a flood risk area, you should absolutely carry a flood insurance policy. In some cases, your lender will require this coverage.

 

If your home is located in a high-risk flood area and your mortgage is from a federally regulated or insured lender (most are) the lender must require flood insurance on the home. If you fail to purchase a flood insurance policy your lender can force-place a flood policy on the property and add the premium to your monthly mortgage payment.

 

If you live in a moderate to low risk flood area you are not typically required to carry flood insurance. However, it is up to your lenders discretion, they can require you to carry a flood insurance policy at any time, even if not required to by the government.

 

The reasoning behind requiring flood insurance is simple. Floods are actually more common than you think and they can cause massive damage. According to FEMA, floods are the number one natural disaster in the United States. Over the course of a 30-year mortgage a home has a 26 percent chance of flooding compared to only 9 percent chance of being damaged by fire.

 

In addition, flood claims tend to be expensive, according to NFIP data, the average flood claim was for $33,000 over the past ten years. You will end up paying this out of pocket if you are not carrying flood insurance.

 

Where Do I Get Flood Insurance?

The majority of flood insurance polices are NFIP policies although it is possible to purchase flood insurance in the private market. The NFIP was created in 1968 to help homeowners and businesses purchase flood insurance.

 

While NFIP flood insurance policies are administered and backed by the federal government, they are sold through normal insurance agencies. The government sets the rates for specific areas so pricing should be the same regardless of where you purchase a policy.

 

There are restrictions with a NFIP policy:

 

  • Coverage is limited to $250,000 so if it will cost more to rebuild your home than $250,000 you will have to look to the private market for supplemental coverage.
  • Personal property coverage is limited to $100,000. If your personal property exceeds this amount you may need a private market policy in addition to an NFIP policy.
  • NFIP policies do not cover damage to a basement except essential items such as HVAC systems and plumbing. Personal property and furniture is excluded from coverage.
  • NFIP polices do not offer additional living expenses coverage. This means that if your home is unlivable due to flood damage you will need to cover hotel bills and other expenses related to being out of your house.

 

 

 

 

Flood insurance is available in the private market and is often more robust than an NFIP. Check with your insurance agent regarding private market coverage in your area.

 

The Cost of Flood Insurance

Flood insurance prices can vary dramatically depending on where your home is located. Coastal homes and water front residences will usually be the most expensive to insure.

 

Data from Floodsmart.gov shows that the average cost of a flood insurance policy is roughly $700 a year but costs can quickly escalate the closer your home is to water or high risk flood areas.

 

Determining Your Risk

Flooding can happen in just about any location but certain areas carry a higher risk of flooding. Flood Insurance Rate Maps (FIRMs) have been created to help both communities and homeowners get a better understanding of their flood risk. These maps break risk into three categories:

High Risk Areas: In an area considered high-risk there is a 1 in 4 chance of flooding over a 30-year mortgage. If the government backs your mortgage you will be required to carry flood insurance.

 

Moderate-Low Risk: The risk of flooding in these areas is certainly lower but it can still happen. NFIP data shows that 20 percent of flood claims originate in these areas and one-third of all disaster assistance due to flooding goes to low to moderate risk areas. While flood insurance is not required in these areas, the majority of experts recommend that homeowners carry it.

 

Undetermined Risk:  In these areas there has not been a flood risk analysis done so flood insurance is not required. Check with your local officials and insurance agent to see determine if you need flood coverage.


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