When is flood insurance required

Flood insurance is usually only required if you live in a high-risk flood area and have a mortgage on your home, although it is worth considering even if only one — or neither — condition applies to you. Federal law states that mortgages backed by the government must have flood insurance if the homes are located in Special Flood Hazard Areas (SFHAs).

You need to be covered for an amount equal to your property's rebuilding cost or to the maximum limit of coverage available to you. Private insurers often require flood insurance for high-risk homes too, though, it's not universal. While you are only required to adhere to minimum coverage, you may want to consider getting more to protect your home and possessions.

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Minimum flood insurance requirements

If you have a federally backed mortgage like an FHA loan, and live in a high-risk flood zone, you will be required to purchase flood insurance. The National Flood Insurance Act (NFIA) of 1968 and the Flood Disaster Protection Act (FDPA) of 1973 created flood insurance requirements for lenders. Together, they stipulate that all mortgage lenders backed by Fannie Mae or Freddie Mac must mandate homeowners to buy flood insurance coverage if the property is located in an area with a 1% chance or more of flooding — sometimes also called a 100-year flood zone.

Private lenders will often have similar requirements for mortgage holders in similar areas, though it is not legally mandatory for them to do so. In either case, you can buy a policy backed by the National Flood Insurance Program (NFIP) to satisfy the requirements. A flood insurance policy from a private insurer may also suffice.

Mortgage companies require flood insurance because they have a financial stake in the property. If a house is totally destroyed by a flood, and the homeowner decides to abandon the home and stop making payments, the mortgage lender would be stuck with the worthless property. Requiring flood insurance mitigates this risk for both the mortgage lender and the homeowner.

You are required to have enough insurance to cover the cost of the development of your property or the maximum limit of coverage, whichever is lower.

Guidelines for who must purchase flood insurance

The cost of development includes rebuilding your home if it is destroyed in the event of a flood. The insurance company's underwriter will determine this figure based on the materials your home was made of, as well as the cost of materials and labor in your area. The replacement value may differ from year to year, as the cost of goods and services fluctuates.

The maximum limit of coverage depends on whether you choose to buy a federal or private flood insurance policy. Coverage from the NFIP typically can't exceed $250,000 for your home's structure and $100,000 for your personal property. Private flood insurers can provide much higher limits. For example, the Homeowners Choice Property & Casualty Co. provides up to $500,000 of coverage to homeowners in South Carolina.

How much flood insurance do you need?

Homeowners and renters living in high-risk flood areas should consider how much insurance they need — not just the required amount. You always want your flood insurance coverage to equal the value of your home and possessions so that you'll be reimbursed if the worst happens.

The cost to rebuild your home is based on several factors, including the size of your house, the quality of materials used and the cost of labor in your area. Your home insurance company can likely provide you with an approximate rebuild cost, especially if you have recently purchased homeowners insurance.

Note that your home's rebuild cost is a different amount than your home's market value. Rebuild cost is usually lower than market value, though high demand for labor after a large disaster such as a flood can drive up costs significantly.

Next, come up with the total value of your personal property. Essentially, this includes everything that is inside your home, such as furniture, clothing, appliances and other belongings, though some items, like outdoor furniture and golf carts, may be exempt from coverage.

When shopping for flood insurance, remember that many policies also have individual limits on possessions within a specific category. Instead of focusing on the lump sum of coverage, consider how much you will need to protect your individual possessions by categorizing them. For example, if you have a trading card collection worth $10,000, some flood insurance policies may not pay out enough to cover your loss. Private flood insurers may be better-suited to insure for specialty items like these.

NFIP Limits for Flood Insurance Coverage

• Building Structure: $250,000
• Personal Property: $100,000
• Valuables and Business Property: Up to $2,500 for fine art, collectibles, furs, jewelry and business property combined
• Additional Living Expenses: No coverage

If these limits aren't high enough to cover all your belongings, private flood insurance is likely the better option. Of note, NFIP flood insurance does not provide coverage for additional living expenses, which pays for extra costs like a hotel or apartment if your home is uninhabitable due to flooding. If you live in an area at a high risk of flooding and do not have an accessible place to stay like a family member's house, consider selecting a private flood insurer who provides additional living expenses coverage.

Flood insurance, especially for homes in areas that are located in Special Flood Hazard Areas and are at a high risk of flooding, can be very expensive. There are a few methods you can try to reduce or remove the amount of flood insurance you're required to buy, though they won't all work in every situation.

In general, while these actions may absolve you of the requirement to buy flood insurance, many will also result in your flood insurance premiums being cheaper. We highly recommend flood insurance to any homeowner whose property is at risk of flooding, even if they are not obligated to buy coverage.

Research insurance requirements before you buy

Home sellers and lenders aren't obligated to inform you of flood insurance requirements ahead of time — it's up to you to verify whether a home is in a high-risk flood zone and requires flood insurance. Before you put any money down to buy a home, check for flood insurance requirements and rates as part of your full inspection, so you know what you'll have to pay once you move in.

Use a conventional mortgage

While all federally backed mortgage lenders will require homeowners in high-risk areas to buy flood insurance, not all private lenders will. If you are able, opt for a conventional mortgage, which may have looser requirements for flood insurance.

Petition to remove your flood insurance requirement

It's possible that the FEMA flood map incorrectly lists your home as existing in a flood zone. If you believe that your home should not be subject to a flood insurance requirement, you can petition FEMA to revise their flood map so that your house is moved outside the flood zone. Note that this option typically involves paying a surveyor to inspect your home, can cost hundreds or thousands of dollars and comes with no guarantee that you'll be able to adjust your flood zone.

Check prices at multiple private insurers

NFIP flood insurance prices are the same at every insurance company, but rates from completely private flood insurance companies may not be. It's worth checking with multiple local flood insurance companies to see who will offer you the most affordable coverage.

Push for large-scale flood mitigation measures

Cities like New Orleans have significantly reduced their residents' flood risk by putting active flood control measures into place, such as flood walls or levees. If your neighborhood is at a significant risk of flooding, encourage your elected representatives to explore similar measures in your area. These protections can bring your flood insurance premiums down significantly.

What’s worse than going through a natural disaster? How about surviving a natural disaster only to learn that your losses, including the loss of your home, are not covered by your homeowner’s insurance policy?

It’s important to make sure you buy all the coverage you need to keep your property and belongings safe. Homeowners insurance is a great start, but ask yourself if you need flood insurance, too.

Flood insurance is available to homeowners living in areas at risk for floods and is a standalone insurance policy (separate from your homeowners insurance policy) that provides comprehensive coverage for losses caused by flooding. A flood insurance policy covers any damage related to flooding, regardless of the causes.Floods are one of the most common natural disasters in the U.S. There’s a 26% chance that you’ll experience a flood at some point during a 30-year mortgage, according to the Federal Emergency Management Agency (FEMA). Unfortunately, most of these damages aren’t fully or even partially covered under most regular homeowners insurance policies.Your homeowners insurance policy includes hazard insurance, which may cover some structural damage from flooding events if they were caused by a specified covered hazard. Notice the “may” and “if” in that last sentence. For example, if a water main breaks during an ice storm and causes flooding, you are covered for structural damage to your home but probably not damage to your personal property. On the other hand, if a hurricane caused flooding, your homeowners insurance offers no protection.

Your mortgage lender may require you to buy flood insurance, especially if you’re buying a house in a flood zone. Federal law requires anyone who buys a home with government-issued or government-backed financing in a high-risk flood area to purchase flood insurance.

What happens if your property is in a moderate- to low-risk area instead? You’re not required by federal law to buy flood insurance – but your lender can still require you to buy it. Or you may decide you’re not interested in taking a chance with floods, given the extreme weather of recent years. For these homeowners, Preferred Risk Policies (PRPs) are Standard Flood Insurance Policies (SFIPs) offered through NFIP to homeowners in moderate- to low-risk areas at a lower cost.

Floods can happen anywhere it rains, according to FloodSmart.gov, an official website of the Federal Emergency Management Agency (FEMA) and the National Flood Insurance Program (NFIP). In fact, 1 inch of flood water can cause as much as $25,000 worth of damage.

If you live in a high-risk flood area, you have a one in four chance of experiencing a flooding event during the course of your 30-year mortgage. Because of this likelihood of damage, your lender will generally require you to purchase a flood insurance policy. In fact, homeowners in high-risk areas generally come out ahead of those in lower-risk areas after a flood because they have insurance.

Homeowners In Low Risk Areas

But just because you live in a lower-risk area doesn’t mean that you don’t need flood insurance. From 2014 to 2018, homeowners located outside of high-risk flood areas filed more than 40% of NFIP flood insurance claims and accounted for one-third of federal flood disaster assistance issued.

Only you know your tolerance for risk. The good news is that flood insurance is far less costly in areas at low risk for flooding, so you may find that the price is worth the peace of mind that insurance offers. To estimate the losses you could incur from just a few inches of flood water, check out the FloodSmart flood damage calculator.

Risks Can Change

Don’t be surprised if you’re in one of these moderate- to low-risk areas and later on, your lender notifies you that you are required to purchase flood insurance. Flood maps are constantly being redrawn – and your property location could become designated a high-risk area.

Why and how do maps change? Because weather conditions are dynamic and affected by a wide variety of factors. There are three ways that flood maps can be changed:

1. FEMA initiated changes, as FEMA funding allows
2. Community initiated changes, as communities seek to correct errors or omissions on FEMA maps
3. Cooperating Technical Partners Initiative, which taps state and local resources to develop more accurate information to continually improve FEMA maps

There are two main types of flood insurance: NFIP and private flood insurance. Let’s go over more information about both types to decide which is the right fit for your home.

National Flood Insurance Program

NFIP is offered through FEMA and is backed by the federal government. NFIP is available for homeowners, business owners and even renters in qualifying communities to purchase and protect themselves from a flood.

NFIP is available to any homeowner living in high-, moderate- or low-risk areas. You can find out if your area falls into one of these categories by using FEMA’s Flood Map Service Center or by reviewing FEMA's Eligible Communities list.

How To Qualify For NFIP

Currently, there are more than 20,000 communities across the nation that participate in NFIP. You can find out if your community participates by looking up your address in FEMA’s Community Status Book. If your community does participate, you can apply online or call (800) 621-FEMA to enroll in a policy. Most NFIP policies take 30 days to go into effect, so you’ll want to activate your policy before you close on your home.

What Does NFIP Cover?

It’s important to understand exactly what this type of flood insurance covers before you purchase it. With the right policy, NFIP does cover major flood damages. With standard NFIP coverage, you’re protected against damage caused to your property as a result of a sewer backup.

But what about the contents of your home or the building itself? You’ll need to purchase separate policies, also offered by NFIP, to ensure that these parts of your property are covered.

With NFIP contents coverage the following items are covered:

• Personal belongings, furniture, clothing, electronics and curtains
• Carpets
• Washers and dryers
• Portable appliances (microwaves, air conditioners and dishwashers)
• Original artwork
• Freezers and their contents (refrigerators are not included)

With NFIP building coverage the following items are covered:

• Plumbing, electrical and furnace systems
• Sump pumps, water pumps and water heaters
• Refrigerators, dishwashers and stoves
• Installed carpeting
• Built-in bookcases, paneling, wallboard and cabinets.
• Foundational walls and staircases
• Window blinds
• Detached garages

How Much Does NFIP Cost?

The average cost for flood insurance across the nation ranges between $800 – $1,200 per year, according to FEMA. Keep in mind this range can vary greatly depending on where you live in the country, your location’s flood risk, your policy coverage and any additional coverage plans you get, like contents and building coverage.

Your deductible can also impact your costs. A deductible refers to the amount of money you’ll pay if you file a damage claim with FEMA. Typically, the lower your deductible (i.e., the less money you pay upfront), the more expensive your policy will be per year.

Is The National Flood Insurance Program Enough Coverage?

If you’re not sure whether FEMA’s NFIP will provide enough coverage for your home, it depends on how much coverage you actually need. Let’s look at the limitations of NFIP to get a better sense of what’s not covered.

For residential properties, NFIP does not cover damage that:

• Costs more than $250,000 for the building and $100,000 for the building’s contents
• Is caused by mold or mildew that you could have prevented or that is not directly caused by flooding
• Is caused by movement in the earth, even if this foundational shift is caused by flooding
• Is outside your building but on your property (e.g., decks, septic systems, swimming pools, hot tubs, wells or trees)

Additionally, NFIP does not cover damage to automobiles on your property. It also doesn’t cover temporary housing or alternate living arrangement expenses while your home is unlivable or being repaired.

It’s also important to note that flood insurance won’t cover any wind damage caused by the same storms that damaged the exterior surfaces of your home. If you’re worried about wind damage, look into a supplemental wind insurance plan if you live in a high-risk wind area, particularly the Midwest (tornadoes) and the coasts (hurricanes).

If you think you’ll need more coverage than what NFIP offers, there are other options available through private flood insurance, which can be purchased in addition to your NFIP policy or in place of one.

Private insurance companies are able to offer flood protection coverage in a variety of ways:.

• They can provide NFIP plans.
• They can reinsure NFIP plans.
• They can take on the risks of damages on their own by offering private flood insurance policies.

Most private flood insurance policies are aimed at providing commercial property coverage or secondary coverage on homes with a replacement cost that exceeds $250,000. As of July 2019, federal law mandates that flood insurance policies must provide coverage that is as broad as the coverage offered by NFIP. Private insurers may offer flood insurance plans outside of the NFIP through its Write Your Own Program.

You can get a quote from your current homeowners insurance provider to find out how much coverage they offer and to decide whether you’d prefer to go with NFIP, purchase supplemental coverage or take out a policy with your existing provider.

Pros Of Private Insurance

The main pro of private insurance is that you can insure your home over and above the NFIP’s $250,000 replacement cost ceiling. If your home is worth $500,000, you’re going to need that excess coverage.

Additionally, private flood insurance can cover your living and other incidental expenses incurred because of the flooding, which NFIP does not. If it takes months to rebuild your home, and you do not have family nearby to stay with, you’re going to be glad to have those living expenses covered.

Cons Of Private Insurance

Unlike NFIP-backed insurance, private insurers can drop you at any time if your location’s risk is deemed unacceptable. That can happen through the continual updating of FEMA maps. NFIP insurance can’t be cancelled regardless of changes to FEMA changes to the assessment of flood risk.

Knowing how much coverage you need can help you decide which type of flood insurance is best for your home. In order to figure this out, take a look at the worst-case scenario: How much would it cost to rebuild your home? Although you can use your home’s value to determine this, you might want to reach out to your homeowner's insurance company to find out an estimated rebuild cost.

If this cost is under $250,000 and you’re in a qualifying community, NFIP will provide the protection you need. If it’s higher, you’ll want to reach out to private insurance companies to find out how much supplemental or full coverage will cost to cover your home’s rebuild value. For example, if you want your building covered for $300,000 but know that NFIP only covers up to $250,000, you could turn to private flood insurance to fill the $50,000 gap.

Even if your home’s rebuild cost is under $250,000, you might want to check with your current insurance provider so you can compare quotes from their policies with NFIP coverage.

Your homeowners insurance plan protects your home from many damages and risks. However, if disaster strikes in the form of a hurricane, tropical storm or excess rainfall that leads to flooding, you’ll need to have a flood insurance policy in place.

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