Do I Need Flood Insurance? – What It Covers & Policy Costs

I grew up in a rugged, semi-rural area. My childhood home sat on a hillside above a narrow but energetic river. From our front window, the river was barely visible amid the trees. I remember it mostly as the centerpiece of a popular nature preserve within walking distance of our house.

Our neighbor, whose house sat right along the riverbank downstream from the preserve, had a very different experience. When circumstances were right – a big snowstorm followed by a sudden warmup or a succession of heavy spring rains – his entire yard turned into a lake. Sometimes it took days to drain. When it finally did, it was often a mess. After the worst deluges, the water would spill over his property lines and flood the main road, temporarily cutting off the immediate area. Fortunately, our house was always well above the waterline.

As a kid, I was ambivalent about my neighbor’s plight. His property was nicer than ours. Much of the year he could gaze out his back window at a gentle waterway surrounded by majestic trees. Wild animals – deer, turkeys, waterfowl, coyotes, and the occasional river otter – frequented the area. But when the river overran its banks, I wondered how he could possibly deal. Even in dry years, his basement probably flooded a couple of times, and wet years must have been a constant struggle.

I didn’t know about flood insurance then. Now that I do, I hope my old neighbor had it, though he may not have been covered by the more localized events that only affected his house. If you live in a flood-prone area, or are thinking of moving to one, you might consider adding it to your arsenal of coverage. Here’s what you need to know about flood insurance before determining whether it makes sense for your home.

What Is Flood Insurance?

A flood insurance policy is typically issued with a one-year term covering home and property damage due to flooding. The Federal Emergency Management Agency (FEMA) defines a “flood” as “a general and temporary condition of partial or complete inundation of two or more acres of normally dry land area or of two or more properties, at least one of which is the policyholder’s property.”

Per FEMA, a flood can be any of the following:

These conditions are typically caused by long-term wave action, in cases exacerbated by rising sea levels, or discrete, predictable weather events such as hurricanes or thunderstorms. However, they may also be caused by more rare or unpredictable events, such as an earthquake-generated tsunami or dam failure.

Flooding events that originate indoors – due to burst pipes for example – aren’t covered by flood insurance. However, they may be covered, wholly or in part, by standard homeowners insurance policies.

Note that FEMA’s definition of flooding covers more than just standing water in low-lying areas. In fact, it covers almost all types of flooding that originate outside the home – as opposed to indoor events. Even if you live on a hillside and don’t consider yourself at risk for a typical standing-water flood, you could still be at risk of damage from a mudslide or runoff.

Flood insurance policies may cover at-risk homeowners (including condo owners) and business owners for structural damage and the loss of dwelling or building contents. Flood insurance is also available for at-risk renters, principally for dwelling contents.

Who Offers Flood Insurance?

It’s important to note that standard homeowners insurance and renters insurance policies don’t cover damage due to flooding originating outside the home (as opposed to a burst pipe inside the home). According to the Insurance Information Institute, nearly half (43%) of American homeowners mistakenly believe that their home insurance policies do cover such flooding. This common misperception leads many at-risk homeowners to forgo flood insurance.

So who offers it? The National Flood Insurance Program (NFIP), also known as FloodSmart. The NFIP was founded in 1968 and currently works with about 80 private insurance companies, such as Allstate and Liberty Mutual, to provide flood coverage for at-risk homeowners and renters. Policies approved by the NFIP can be purchased directly from participating insurance companies or from agents authorized to sell their policies.

However, not all U.S.-based insurance companies offer flood insurance. If you have renters or homeowners coverage through a company that doesn’t participate in the NFIP, you have to look to another provider.

Also, not all communities have signed onto the NFIP’s floodplain management requirements, which govern zoning, building construction, infrastructure placement, and other aspects of the built environment in flood-prone areas. If your county or city hasn’t agreed to those requirements, your policy may come with a higher premium relative to similar policies in participating communities, or you may not be able to obtain a policy at all. Tens of thousands of communities do take part, however, so there’s a good chance yours does as well.

How Flood Insurance Works

The availability, cost, and coverage of flood insurance is highly dependent on geography. FEMA maintains about 100,000 flood risk maps (also known as flood risk insurance maps, or FIRMs) covering a significant chunk of the U.S. landmass. Each map separates its coverage area into flood insurance zones, areas in which the risk of flooding is roughly equal. Zone boundaries typically follow elevation contours and landforms, with the highest-risk areas found along riverbanks, shorelines, and canyons, and the lowest-risk areas on high, stable ground.

Flood Insurance Zones

There are three broad types of flood insurance zones. The first two are further divided into sub-zones to indicate risk gradients within them:

• High-Risk Areas or Special Flood Hazard Areas. If your property is in a Special Flood Hazard Area and you hold a residential or commercial mortgage from a federally licensed and insured mortgage issuer, you’re required to carry flood insurance. Renters are strongly encouraged, but not required, to carry flood insurance. Special Flood Hazard Areas are defined as having a 1% or greater chance of flooding in any given year. Their outer boundaries are sometimes called the Base Flood Elevation, with base flood referring to the so-called 100-year flood, or the worst flood expected to occur in that location within a 100-year period. On flood risk maps, Special Flood Hazard Areas are denoted with letter-number combinations beginning with the letters “A” or “V.”
• Moderate-to-Low-Risk Areas. These areas have a lower risk of flooding: between 0.2% and 1% for moderate-risk, and less than 0.2% for low-risk, in a given year. However, partly because they cover much more ground, they’re still responsible for a significant number of NFIP flood claims and receive substantial distributed disaster assistance for flooding. No one who lives, works, or owns property in these areas is required to carry flood insurance, though NFIP recommends that they do. On flood risk maps, moderate-to-low-risk areas are denoted by the letters “X” (shaded or unshaded), “B,” and “C.” Within this broad risk category, “B” denotes the highest risk, “X” denotes middling risk, and “C” denotes the lowest risk.
• Undetermined-Risk Areas. These areas aren’t immune to flooding, but haven’t been formally evaluated for flood hazard. They’re marked with a “D” on flood risk maps. Though the NFIP doesn’t explicitly recommend or require flood insurance in these areas, it does insure properties within them.

The first step to determining whether you should obtain flood insurance coverage, and how much it could cost, is to consult your area’s flood risk map and find out what zones and sub-zones you live or own property in. To find your map, search FEMA’s Flood Insurance Risk Map database by address, community name, or latitude-longitude coordinates.

How Flood Insurance Policy Costs Are Determined

Flood insurance is unusual in that premiums are set and fixed by the NFIP, based on its assessment of policyholders’ flood risk, coverage limits, deductibles, and the age and material components of covered structures. Premiums don’t vary between insurers, so there’s no need to shop around for a better deal.

However, the NFIP does occasionally modify its risk assessment methods, which could affect your home’s perceived risk. And, from time to time, the program may raise rates across the board to account for inflation.

Factors That May Reduce Your Flood Insurance Premiums

General factors that may reduce your flood insurance costs include the following:

• Preferred Risk Policy. To qualify for a Preferred Risk Policy rate, the covered property must be outside a Special Flood Hazard Zone (Zones B, C, and X) and have a favorable loss history, meaning it hasn’t had a major loss claim. Preferred Risk Policies denote the lowest-risk properties in areas that have been mapped for flood risk. Their premiums are typically 5% to 10% lower than standard low-risk policies.
• Group Flood Insurance. This type of insurance, denoted by a Certificate of Flood Insurance, is only issued in the aftermath of a presidential disaster declaration, which is typically issued following a weather event or other natural disaster that causes large-scale flooding. According to NFIP, property owners can receive Certificates of Flood Insurance regardless of whether they live in a Special Flood Hazard Zone or are required to carry flood insurance by their mortgage issuer. Though recipients can technically opt out of the group flood insurance policies denoted by their certificates, those who opt out can be disqualified from future disaster assistance – so if you choose not to accept your group policy, you could face enormous costs in the event that a subsequent flood results in a disaster declaration covering your property. Group flood insurance policies come with special three-year terms and heavily subsidized premiums – often less than 50% of the cost of a standard, individual flood insurance policy for the same area. Residents who are required or wish to continue carrying flood insurance after the group policy’s three-year term must purchase a standard policy and pay full premiums.
• Community Rating System Participation. NFIP communities that exceed the minimum standards for flood protection and damage mitigation may earn credits through the Community Rating System, a federal government incentive program. Communities earn credit by investing in homeowner education initiatives, strict building codes, and additional flood protection measures. Credits roughly translate to premium discounts for policyholders in those communities. These discounts can range up to 10% for moderate-to-low-risk properties (non-SFHA) that don’t already qualify for Preferred Risk Policy premiums, and up to 45% for high-risk properties. Preferred Risk Policies aren’t affected by Community Rating System participation.
• Flood Map Grandfathering. In certain cases, property owners whose flood risk maps have been changed to reflect increased risk may be able to lock in the lower premiums paid prior to the change. Separately, buildings constructed in high-risk areas prior to flood risk mapping may qualify for subsidized premiums, particularly if they have historic value, though the NFIP doesn’t say how much subsidies can reduce premiums.
• Flood Protection Systems. Properties in high-risk areas protected by large-scale flood protection systems, such as the levees along the lower Mississippi River, may qualify for lower premiums. The premium reduction is roughly equivalent to the difference between a high-risk and moderate-risk policy, though individual circumstances (such as the precise elevation of the covered structure and whether the levee has ever failed) can affect the exact reduction. Qualifying flood protection systems must be rated to protect against a 100-year flood or better. For a real-world example, according to PBS, the levee system constructed to replace the one that failed in Hurricane Katrina is rated to withstand a 100-year flood.

Flood Insurance Policy Types: What Flood Insurance Covers and What It Costs

Depending on your location, flood risk, whether you’re insuring your residence or business, and whether you own or rent, you can choose from several flood insurance policy types: residential contents only (personal property), residential building and contents, commercial contents (business equipment and inventory), and commercial building and contents.

Where costs are indicated for policy types below, they apply to residents and business owners in moderate-to-low-risk flood zones who qualify for the Preferred Risk Policy premium schedule and choose a $1,000 deductible. In other words, these are premiums for the lowest-risk policies available.

In high- and undetermined-risk areas, premiums are very much dependent on individual circumstances, such as the elevation of buildings on your property, nearby terrain features, and recent flooding history. Accordingly, premiums vary widely and are difficult to estimate. However, particularly in high-risk areas, they’re liable to be substantially higher than premiums indicated below. If you live in a high- or undetermined-risk area, you should speak to a licensed agent with knowledge of your circumstances.

Contents Only Policy (Personal Property Coverage)

Since it doesn’t cover damage to a property’s main building or outbuildings, nor associated cleanup and repair costs, a contents only flood insurance policy isn’t ideal for homeowners and commercial property owners. It’s a better fit for rental property dwellers and business owners who lease space in a commercial building.

Residential coverage limits (for both renters and homeowners) range from $8,000 to $100,000, per FEMA. Nonresidential (business) coverage limits range from $50,000 to $500,000. Note that it’s significantly cheaper to insure above-ground contents only.

• What’s Covered: Coverage typically includes personal belongings, such as electronics, clothing, furniture, and non-powered vehicles such as bicycles, if stored inside. It also includes nonstructural window treatments and curtains, portable and window air conditioners, portable kitchen appliances like microwave ovens, impermanent carpets and rugs, washers and dryers, freezers and the food in them, and the first $2,500 of high-value items, such as original artwork and designer clothing.
• What’s Not Covered: Non-covered items generally include cars and car parts and items housed outside the covered area, such as an external shed without a separate policy or a basement if there’s no below-ground coverage. Also not covered are currency, valuables (such as jewelry and artwork) above the $2,500 limit, and damage done from mold, mildew, and long-term moisture. Temporary housing and relocation expenses are also not covered, but they typically are included in a renters or homeowners policy.
• Cost for Residential Policies: For an $8,000 coverage limit, expect to pay in the neighborhood of $50 to $100 per year. For a $50,000 coverage limit (the median amount), expect to pay two to three times that range. For $100,000, expect to pay four to six times that range.
• Cost for Nonresidential Policies: For $50,000 policies, above- and above-/below-ground premiums typically range between about $200 and $400. For $250,000 in coverage (the median coverage limit), respective premiums come in at approximately three times that range. For $500,000 in coverage, respective premiums come in around five times that range.

Building and Contents Policy

Policies that cover buildings as well as their contents are more comprehensive, and thus a better fit for homeowners and commercial property owners. Residential building coverage limits for one- to four-family houses range between $8,000 to $100,000 for contents and $20,000 to $250,000 for structures.

Residential structures with more than four units are considered “general properties.” Contents coverage for these properties also range between $8,000 to $100,000 while structural coverage limits rise from $50,000 to $500,000. Both contents and structural coverage limits for commercial buildings containing businesses range from $50,000 to $500,000.

• What’s Covered: In addition to everything covered under the contents only policy, covered items typically feature the building itself, including the foundation and foundation walls; electrical and plumbing systems; HVAC equipment, including central air conditioning and heating; water heaters and furnaces; refrigerators, cooking stoves, dishwashers, and other kitchen appliances; permanent carpeting (not area rugs); built-in wall paneling, cabinets, bookcases, and entertainment centers; structural window blinds; detached garages, not to exceed 10% of the property’s total built square footage; and post-flood debris removal. Detached buildings, such as guest houses and sheds, require a separate policy even if they’re on the same zoned property.
• What’s Not Covered: In addition to the exclusions under the contents only policy, non-covered items and losses typically include financial losses due to business interruption, inability to get to work, or loss of use of the covered property. External structures without separate flood insurance policies, external infrastructure, such as septic systems, walkways, detached decks, patios, and lawn furniture, are also not covered.
• Cost for Residential Policies: For $20,000 structural/$8,000 contents policies, expect annual premiums between $100 and $200 for residential structures without basements and $150 to $300 for structures with basements or other subterranean enclosures. For $125,000/$50,000 policies, expect premiums approximately double that range. For $250,000/$100,000 in coverage, expect premiums to be about 25% than $125,000/$50,000 policies. Bear in mind that these figures are subject to change.
• Cost for Nonresidential Policies: For $50,000/$50,000 policies, non-basement and basement premiums come in between $600 and $1,200, respectively. For $250,000/$250,000 in coverage, premiums cost two to three times more. For $500,000/$500,000 in coverage, premiums cost four to five times more.

Special Considerations for Basements and Areas Below the Ground Floor

Since basements, walkout basements, and lower-level crawlspaces sit partially or fully below ground, they’re much more prone to flooding and flood damage. In addition to the simple fact that having a basement is likely to increase your flood insurance premium, it, and other subterranean spaces, may be subject to certain coverage limitations.

Though you should talk to your insurance agent or company representative for a complete accounting of your policy’s exemptions and coverage limits, flood insurance (regardless of policy type) generally doesn’t cover the following elements in basements, walkout basements, lower-level crawlspaces, and other subterranean parts of your home:

Items that typically are covered in basements and similar spaces include the following:

It’s especially important to understand these limitations and considerations if your main living space sits partially below ground, as in the case of a basement apartment or split-level home.

Waiting Period

Flood insurance policies usually go into effect 30 days after the date of issue. In other words, you can’t make a claim on an event that occurs less than a month after you buy your policy.

There are some exceptions to this 30-day waiting period rule:

• Recent Burn Scars on Federal Land. The covered property sits on federally owned or managed land that has been damaged by a wildfire contained less than 60 days ago and is now flooded.
• Stringent Mortgage Lender Requirements. The covered property is outside a Special Flood Hazard Area, but your mortgage lender still requires you to get flood insurance, either before or after closing your loan. Since this can result in a scramble for coverage, your policy typically covers claims made within 30 days of its issue.
• Mortgages in SFHAs. The covered property is inside a Special Flood Hazard Area and you’re obtaining flood insurance as a requirement of a new, extended, or renewed mortgage. Again, due to the expedited nature of such a policy, it typically covers claims made within 30 days of issue.
• Flood Risk Map Revision. Your flood risk map has been revised and your property now sits inside a Special Flood Hazard Area. In this case, you must purchase your policy within 13 months of the map revision to be eligible for the waiting period exemption.

Final Word

Lots of people have a love-hate relationship with the place they live. In many cases, that complicated feeling can be traced to geography, geology, or climate. For coastal Californians, the cliché goes, earthquakes, drought, wildfires, and mudslides are an acceptable trade for mild weather and rugged beauty. Residents of the Midwest and Plains states balance low living costs and friendly communities with frigid winters and severe summer thunderstorms.

People who live in close proximity to water, whether along unruly rivers or storm-prone oceans, accept the risk of potentially catastrophic flooding in exchange for on-demand water access and great views. Your backyard could be full of surprises, some pleasant and some not so much. It’s up to you to prepare and celebrate in equal measure.