Whether you’re in the process of buying a new home or you just paid off your mortgage, at some point, you’re going to ask yourself, “Do I need flood insurance?”
Some lenders require homeowners to obtain a flood insurance policy. However, some do not. It generally depends on the risk of flooding around the home. For high-risk areas around the coast or near a river, it’s almost a given.
But what about people who live in the desert? Do they need flood insurance?
Removing the mandate for flood insurance isn’t quite the same as removing the risk. Just because you’re not required to purchase flood insurance doesn’t equate to you shouldn’t.
The National Flood Insurance Program (NFIP) reports that 40% of flood insurance claims come from outside of designated high-risk flood areas. Heavy prolonged periods of rain, slow-melting snow, hurricanes, and rising water levels can cause flooding.
Your home is one of the most expensive things you own. You need to protect it and yourself. It’s time to understand the basics of flood insurance before making a decision that could cost you thousands in premiums or repairs.
What Is a Flood
A flood is “an overflow of water onto land that is normally dry.” A flood in one area can look different from another by covering just a few inches of land in water versus several feet. The build-up of water can be quick over a few minutes or gradual over many weeks.
Flooding may occur from heavy rain, snow melting quickly, ocean waves onshore, and more. There are five primary types of floods:
- River Flood
- Coastal Flood
- Storm Surge
- Inland Flood
- Flash Flood
Flood hazards change over time due to natural or developmental changes in a community. For example, new construction, weather pattern changes, and terrain changes can affect a community’s flood risk.
Check out this FEMA flood map to determine your community’s risk of flooding. And be sure to check back as the risk of flooding changes over time. As communities build dams and levees, the risk of flooding can also decrease. You never know the direction it will go, and believe me, you want to be prepared. Some homeowners may be surprised to find that they are located in Zone D, which lacks a flood risk determination.
What Is Flood Insurance?
A standard homeowner policy doesn’t cover flood damage. Sure, it may cover interior water damage from a burst pipe or a tornado. But, it won’t cover damage by floodwaters, hurricanes, excessive rain, or a broken dam.
Flood insurance is a standalone insurance policy that covers damage caused by flooding. It covers building replacement costs and personal property losses. It is available to all homeowners regardless of location.
Where Can I Get Flood Insurance?
You have two options to purchase flood insurance. You can google, call, or check out:
- Private insurance companies
- National Flood Insurance Program (NFIP)
Private Insurance Companies
Private flood insurance is typically provided as a secondary policy on homes with a primary homeowner insurance policy. Call your existing insurance provider and get a quote on a flood policy.
Private insurance may cover your home above the $250,000 replacement ceiling by NFIP. Private insurance may also cover living and incidental expenses that have been incurred because of flooding. However, private insurers can drop flood policies at any time they deem your location unacceptable. You may see these changes in eligibility as FEMA changes its assessment of flood risk.
National Flood Insurance Program (Nfip)
The National Flood Insurance Program is run by the Federal Emergency Management Agency (FEMA). Although a private insurer offers the policy, the rate is set by the government. In other words, it doesn’t matter who the private insurer is; the rates will be the same when obtained through NFIP.
NFIP policies allow for up to $250,000 for building replacement costs and $100,000 for personal property.
NFIP partners with private insurance companies to sell flood policies for the lowest rate. NFIP’s Risk Rating 2.0 leverages industry best practices and technology to deliver rates that are easy to understand and accurately reflect a property’s flood risk. The NFIP insurance provider locator may help you find a provider.
How Much Does Flood Insurance Cost?
Like most things in life, the cost of flood insurance depends. For some, it’s going to be considered cheap, and for others, it will look expensive.
The cost of flood insurance depends on the property’s location, age, elevation, number of floors, and price to rebuild. Although the average cost is around $700, your fee may be higher or lower. So it really depends on your home and individual factors.
When thinking about the cost of flood insurance, be sure to consider the costs of not having it. How much do you stand to lose if you don’t have flood insurance and you end up needing it?
And before assuming it is going to be expensive, try running some numbers in your budget. Or look at passive streams of income to help you find the extra cash for it.
Do I Have To Have Flood Insurance?
Honestly, if we’re using the words “have to,” the answer is it depends.
If you live in a low-risk area, you may not be required by law or your lender to carry flood insurance. However, by federal law, if you have a mortgage and live in a high-risk area, you will be required to have flood insurance.
Be sure to check with your lender to be compliant with their policies.
If you don’t have a mortgage and live in a high-risk area, you aren’t required to carry flood insurance. But it would help if you thought about what that means. You are at high risk of flooding and won’t be covered if you have flood damage to your home or personal property. The costs can be extreme and devastating. In addition, federal grant programs are unlikely to return your home to its pre-disaster condition.
Benefits of Flood Insurance
Less than one inch of water can cause $25,000 worth of damage. Imagine the costs with more water.
Although we can’t predict the effects of Mother Nature, we can protect ourselves. A flood policy ensures that the devastating impact of a flood doesn’t cause catastrophic effects on your financial situation.
It offers peace of mind and protection from catastrophic damage related to flooding. It saves you time and anxiety in the event of the unexpected. It may not only protect your home but protect your personal belongings.
Obtaining a policy is simple and flexible. You can change it at any time for just a few minutes of your time.
Lastly, if you work through NFIP to buy a policy, you can rest assured in knowing that you have an excellent, non-exploited rate. Premiums will be reasonable and federally backed.
To Buy or Not To Buy
The decision to buy or not to buy is going to be a personal decision. You have to weigh the risks and the benefits of having a flood policy.
Keep in mind that natural disasters can have catastrophic financial effects on families and be devastating to those who are not prepared. For some, the decision to buy is mandatory, and for others, it’s not. But you have to understand that not being required to have a flood policy isn’t the same as there’s no risk of flooding, and you don’t need a separate policy.
If you have rain or snow where you live, there’s some chance of flooding. And low-risk areas are more likely to have cheaper premiums that give you peace of mind.
Ask yourself the following questions when deciding if you should buy a flood policy:
- What does your current financial situation look like?
- What are your financial goals?
- Do you have a lot of debt now?
- Do you have an emergency fund?
- Do you have a stable income?
- How would you feel if you had to pay $25,000 or more to fix your home?
- How would you feel if you had an insurance policy to cover an unexpected natural disaster?
It’s 2021, and weird things sometimes happen. Catastrophic flooding can happen anytime, anywhere, and to anyone. Preparing now can save you time, fear, anxiety, stress, and even money. Take time to prepare now, and your future self will thank you.
What do you think? Do you have a flood policy, or are you taking your chances? Comment below.
Theresa is the founder of the blog In The Game Investing. She is a personal finance and investing enthusiast, helping professional women take control of their money and investments.