How to save on flood insurance

If your home is located in or near a flood zone, finding the right flood insurance policy may be a necessity in order to protect your finances from a costly disaster. After all, just one inch of water could cause $25,000 in damages to your home, according to FloodSmart.gov. Unfortunately, if you do not have a separate flood insurance policy, you will pay the cost directly, as a flood is an excluded peril on standard home insurance policies.

The most recent data provided by the Federal Emergency Management Agency (FEMA) shows the average flood insurance policy is $700 annually. How much you will pay for flood insurance depends on several factors, such as your home’s flood zone, the coverage amount you need and certain home characteristics. Learning more about flood insurance rates, as well as the policy’s components, could help you understand if flood insurance is right for you.

Factors that determine flood insurance cost

The average U.S. homeowner may pay around $700 per year for a flood insurance policy, but as with other forms of insurance, your premium will vary based on your individual rating factors. While the best way to know how much your flood insurance will cost is to get a quote, understanding the factors that determine your premium might help you to control your premium as much as possible.

If you have a mortgage or other type of home loan, your lender will require you to buy a flood insurance policy if your home is in a Special Flood Hazard Area (SFHA), Coastal Barrier Resources System (CBRS) or Otherwise Protected Area (OPA). Flood policies are generally required to be paid in full, either by you directly or out of your mortgage’s escrow account.

Flood risk

The first and perhaps most significant factor that determines the cost of flood insurance is the historical risk of flooding in your region. While every home has a level of flood risk, only those in moderate- to high-risk areas typically require flood insurance. Even if you are in a low-risk flood zone, you still have a small risk of flood. One in three flood insurance claims are in low- to moderate-risk areas, according to FEMA. Since flood insurance is based on risk, the more likely flooding is in your area, the more your flood insurance is likely to cost. To find how much of a risk flooding is in your area, check out FEMA’s flood maps for your region.

Where your home is specifically located within a floodplain also plays a role in the cost of flood coverage. Your home may be located within a floodplain, but your flood insurance could be lower if your house is built on a hill or other elevation. This is because the elevation reduces the risk of flood damage, thus reducing the risk that an insurance company will have to pay out a claim.

Home age and construction

Flood insurance providers also pay close attention to how your home is constructed and how old it is. Older homes built before modern construction materials and techniques may be more vulnerable to damage caused by flooding and could incur additional expense – such as custom lumber milling – to repair. Some modern building techniques may help mitigate flood damage, like including floor openings for water to drain out more quickly.

Type of coverage

There are only two coverage options on a flood insurance policy: building coverage and contents coverage. Choosing a policy with no contents coverage will likely be cheaper than choosing a policy that includes both coverage types, but could leave you financially vulnerable if a flood destroys your home and everything in it.

Coverage limit and deductible level

Generally, the more coverage you purchase, the higher your premium will be. The higher your coverage, the greater the risk to the insurance company, which is taking on greater risk with higher coverage levels. Your deductible, which is the amount of money you will pay out of pocket if you file a claim, also impacts your premium. Typically, the higher your deductible, the lower your premium will be. With a higher deductible, you are taking on a higher amount of financial responsibility in the event of claim, thus reducing financial burden of the insurance provider.

Type of policy

Depending on your home’s location, you may qualify for a National Flood Insurance Program (NFIP) Preferred Risk Policy (PRP). If your home is located in a low-risk flood area, you may be able to purchase valuable PRP flood insurance coverage at a lower price. Standard policies are often the only option for homes located in moderate- and high-risk flood areas.

Insurance company

Historically, flood insurance was only offered by the National Flood Insurance Program (NFIP). Although various insurance companies were able to facilitate the purchase of NFIP policies, the rates were standardized regardless of what company you purchased coverage from. However, within the last several years, private insurance companies have begun to sell and underwrite their own policies. Now, with more companies selling flood insurance, you can get several flood insurance quotes to compare coverage types and premiums, just like you can with homeowners insurance quotes.

Risk Rating 2.0

In October 2021, FEMA unveiled a redesigned NFIP rating strategy called Risk Rating 2.0. Previously, flood rates were heavily determined by your home’s location within a floodplain and its elevation.

Risk Rating 2.0 is designed to more accurately determine rates based on a variety of factors. The new rating system includes factors like flood frequency, the type of flood risk in a given area (storm surge, river overflow, heavy rainfall, etc.), distance to a water source, your home’s rebuilding cost and your property’s elevation.

The more varied rating factors are designed to help more accurately rate the risk of flooding at any given location. Risk Rating 2.0 is designed to help reduce the disparity between flood insurance rates for lower-valued homes and higher-valued homes.

What does flood insurance cover?

Many people use the word “flood” to describe any kind of water damage, but floods are distinct weather events and flood insurance is designed to cover a particular set of circumstances.

Flood insurance covers damage caused by weather-related floods, including heavy rainfall, storm surges and overflowing bodies of water. Many homeowners will use the term “flood” when discussing other types of water damage, like broken pipes and water backup. If heavy rains cause a sump pump to fail and water backs up into your basement, that is not a flood. Coverage for damage caused by these instances may be covered on your homeowners insurance, depending on the coverage types and endorsements you have.

According to the NFIP, flood insurance covers:

Building coverage

• Plumbing and electrical systems
• Water heaters and furnaces
• Cooking stoves, refrigerators and built-in appliances (like dishwashers)
• Permanently installed carpeting
• Permanently installed bookcases, cabinets and paneling
• Window blinds
• Foundation walls, anchorage systems and staircases
• Detached garages
• Fuel tanks, well water tanks and pumps and solar energy equipment

Contents coverage

• Personal belongings such as furniture, electronic equipment and clothing
• Curtains
• Washer and dryer
• Portable and window air conditioners
• Microwave oven
• Carpets not included in building coverage (such as carpet installed over wood floors)
• Valuable items such as furs and original artwork (up to $2,500)

Keep in mind that these coverage details are from the policies offered by NFIP. A private flood insurance company may have different coverage types, with different coverage options and limits.

How to save money on flood insurance

You can explore several steps to protect your property from flood damage, and these actions could help you pay less for flood insurance each year. Below are some of the top recommendations from the NFIP.

Some of these steps could be relatively expensive and entail major home renovations. Getting quotes for the work and asking how much the changes could reduce your flood insurance premium might help you decide if you will save enough to justify the cost of taking these measures. But keep in mind that these steps don’t just serve to reduce your flood insurance premium — they could save you from the heartache, stress and emotional fallout from flood damage.

Elevate your utilities

Elevating electrical panels, heating and cooling systems, water heaters and other utilities on a platform above the base floor elevation of your home can help reduce the likelihood of damage from a flood and thus save you money on your premium.

Elevate your property

It may seem like a big undertaking, but the NFIP calls this action the fastest way to reduce flood insurance costs. In fact, if you live in a high-risk flood zone, you might save hundreds of dollars every year for each foot that your home is elevated above your community’s base floor elevation. Elevating your home above the level of flood waters means that it is far less likely to flood and reduces the risk that an insurance company will have to pay out a claim. Obtaining an elevation certificate, which plots your home’s specific elevation on your property, could drastically reduce your premium. If choosing this route, an elevation certificate would need to be obtained every year around the renewal date to assess the best possible flood insurance rate.

Maintain or install flood openings

For insurance purposes, the NFIP requires all new home building and basement renovations in high flood-prone areas to have flood openings below the lowest elevated floor of the home — typically on at least two exterior walls. If your home does not have flood openings, adding them could lower your premium. These openings allow water to drain out of your home, potentially reducing the amount of damage that could happen.

Fill in your basement

Being below ground level, basements are at high risk for severe flood damage. Water can rush in and has no way to drain out. Although filling in a basement may seem like a drastic step, it could save you quite a bit of money on your flood insurance. If you are a new homebuyer and looking at homes in flood plains, purchasing one without a basement might be a prudent financial choice.

Increase your deductible

Most flood policy deductibles start around $1,250 and can go up to $10,000 or higher, although these figures may vary between NFIP policies and private carriers. Typically, the higher your deductible, the more money you will have to pay out of pocket if you file a claim. Just like with homeowners insurance, a higher deductible generally leads to lower premiums because you are agreeing to cover more of the costs of repairs in the event of a claim, thus reducing the risk to the insurance company. Because you will be responsible for paying your deductible if you file a claim, make sure you choose a level that makes financial sense for you.

Relocate to a less risky area

A more drastic way to save money on flood insurance is to relocate your home to a lower flood risk area. Although this does not remove your risk of flooding completely, moving to a low- or moderate-risk flood area can not only lower your flood insurance premium, but reduce the likelihood you will have to file a flood claim.

Move to a Community Rating System community

FEMA offers financial incentives to communities who work together to lower everyone’s flood risk. If your community is granted Community Rating System (CRS) status, it can help lower your cost of flood insurance. If you are in the market to buy a new home, consider one in a CRS community to keep your flood insurance costs minimal.

Frequently asked questions

• • The best flood insurance company will depend on your own needs and preferences. Getting quotes from several companies can help you find a good fit and determine what your average costs might be. Just like when you are comparing homeowners insurance companies, you may want to review more than just the premium. Analyzing each company’s coverage types and third-party scores might help you understand which carrier best fits your needs. Previously, flood insurance was only underwritten by the NFIP. Although various insurance providers sold the coverage, rates were standardized. With the advent of private insurance companies selling their own flood insurance, the market has become more competitive.

  • No, sewage backup is not covered by flood insurance. Homeowners commonly refer to water backing up in their basements as a “flood,” but water backup is a distinct situation in the eyes of an insurance company. Flood insurance only covers flood damage from natural disasters. However, water and sewer backup coverage is a commonly offered endorsement for home policies, so you may be able to purchase coverage for this type of situation.

  • Flood insurance is not required by law, but you may need to purchase a policy if your home is located in a high-risk flood area and you have any kind of home loan, including a mortgage. But even if you do not have a home loan, flood insurance may be a good purchase to protect yourself against the financial stress of repairing flood damage. In many cases, flood insurance premiums must be paid in full upfront.

  • If your home is located in a flood zone, your mortgage lender or financial institution may require you to have an active flood insurance policy as a condition of the loan. If this is the case with your home, you may not have the option to refuse flood insurance. On the other hand, if you own your home outright, neither home nor flood insurance are required, but if you refuse this coverage, you would have to pay for the full repair or replacement amounts out-of-pocket in the event of what would otherwise be a covered loss.

  • Flood insurance policies backed by the National Flood Insurance Program have a standard 30-day waiting period. This is to prevent homeowners from buying coverage when a flood event is imminent; in that situation, a company may not have enough financial backing to pay for the influx of claims. The waiting period can be waived in some situations, such as a home closing, flooding after a wildfire or if your home has been added to a high-risk area due to a flood map change.

  • Flood insurance is not tax-deductible on your personal return, just like home, auto and other forms of insurance are not tax-deductible. However, if you have flood insurance for your business or you are a landlord with flood insurance on your rental properties, you may be able to deduct the cost of flood insurance for your business pursuits on your business tax return.

  • Although the cost of floods vary by severity of damage, the average payout for a flood claim based on the most recent data from the NFIP is $52,000. Without flood insurance coverage, you would be responsible for the entire cost of the flood damage. Keep in mind, 99% of counties across the U.S. have seen a flooding event since 1996. Just because you have not seen one personally, or it has been decades since a flood event, does not mean you will not incur flood costs at some point while owning or renting your home.