Who Needs Flood Insurance?
Most home and renters insurance policies don’t cover flood damage. All homes lie within low-, moderate-, or high-risk flood zones. FEMA determines a structure’s risk by the zone in which it lies on a community flood map. Property owners with structures in low- and moderate-risk areas are eligible to buy low-cost NFIP coverage. Homeowners living outside high-risk areas aren’t required by law to carry flood insurance, but some lenders may require the coverage. Homeowners who have received U.S. Small Business Administration low-interest disaster loans or FEMA grants must carry flood insurance to qualify for future federal aid. If you secure financing through a government-backed mortgage, such as a Federal Housing Administration (FHA) loan, you are required to buy flood insurance for a business or home located in a high-risk area. The NFIP currently offers coverage for FHA-backed mortgages, and in November 2020, FHA proposed a rule change that would allow owners of single-family homes to also purchase private flood insurance.
Basics of an NFIP Flood Policy
The NFIP offers flood insurance for commercial and residential properties. A residential policy covers up to $250,000 in building damage and up to $100,000 in contents coverage. NFIP policies only cover damage directly caused by flooding. It does not cover non-floodwater damage such as caused by a sewer backup unrelated to a flood. Besides structural losses, building coverage includes:
Built-in appliances, refrigerators, and stovesDetached garagesElectrical systemsFuel tanksFurnacesPermanently installed bookcases, cabinets, carpeting, and panelingPlumbing systemsSolar energy equipmentWater heatersWell-water pumps and tanksWindow blinds
NFIP contents coverage covers:
Artwork and furs (limited to $2,500)Carpets not permanently installedClothingCurtainsElectronic equipmentFurnitureMicrowave ovensWindow and portable air conditioners
Commercial and residential property policies feature separate deductibles for building and contents coverages. All NFIP policies go into effect 30 days after the purchase date, except:
When purchasing a policy while amending or refinancing a mortgageWhen changing coverage of an existing NFIP policy when renewing itWhen a property sustains flood damage due to a wildfire on federal land, but only if you purchase the policy within 60 days of the fire’s containment date
When you buy a policy for property in an area newly designated as high risk, the NFIP applies a one-day waiting period, but only if you purchase coverage within 13 months of the flood risk map update.
Where Can You Buy Flood Insurance?
You can buy commercial or residential property owner or renters NFIP policies in any community that participates in the program. Many major home insurance companies either sell NFIP policies or write and service standard NFIP policies through FEMA’s Write Your Own insurance program, including:
AllstateFarmersHomesiteLiberty MutualUSAA
How Much Does Flood Insurance Cost?
Currently, FEMA sets NFIP rates based on a 1970s-era risk-rating methodology, which primarily determines rates based on a property’s flood zone. But that’s about to change with the introduction of Risk Rating 2.0, which will go into effect on October 1, 2021. The agency touts Risk Rating 2.0 as offering NFIP rates that reflect the unique risk of a specific property, a simplified flood insurance process, and more accurate flood risk maps. The program will rely on new technology that delivers a more comprehensive risk assessment. Risk Rating 2.0 will assess risk based on new factors, including a property’s proximity to the coast or other body of water, the types of flooding that can affect a property, and the rebuild and restoration costs of a property. Since Risk Rating 2.0 employs more rating factors, it should help alleviate the problem of large rate increases when flood maps change. According to the American Flood Coalition, Risk Rating 2.0 could increase rates for properties located in flood-prone areas and those with high repair costs. Rates for properties with lower risk and lower repair costs should decrease. Currently, federal law caps premium increases at 18% per year.
Private Flood Insurance vs. FEMA Flood Insurance
A few companies offer private flood insurance, which has a few pros and cons. Private coverage may not be available to everyone in a flood zone, and state insurance codes may not provide the same consumer protections in all states. A private flood insurance policy may offer the flexibility of adding the coverage to a homeowners policy and feature a more affordable rate. However, some private flood insurance policies offer greater protection than NFIP coverage. For instance, Chubb’s private flood insurance policies feature:
Up to $15 million in property and contents coverageProperty and contents replacement cost coverageUp to $7,500 in loss of use coverageUp to $250,000 in debris removal coverage
Flood Insurance vs. Federal Disaster Assistance
Flood insurance is an insurance policy that covers your home and its contents when a covered flood event happens, even if the president does not issue a disaster declaration. With a flood insurance policy, you can rest assured that the coverage will be available to restore your home and replace your belongings. Federal disaster assistance is not an insurance policy. Following a flood, the president may declare a natural disaster or emergency, which activates federal programs. Although not all programs are activated for every disaster or emergency, FEMA’s Individuals and Households Program may provide funding or services such as temporary housing, repair grants, rebuilding grants, and grants for dental, funeral, medical, moving, and transportation expenses. According to FEMA, the average disaster grant only provides about $5,000 per household. Before you can receive federal disaster assistance, you must register to establish eligibility.
