What Is Flood Insurance, and When Do You Need it?

By: , Contributor

Published on: Feb 08, 2020

Flood damage isn't covered by most homeowners insurance policies. Want to protect your property? This flood insurance guide can help.

I had just moved back to the Houston area when Hurricane Harvey hit -- so I'm well aware of just how important flood insurance can be.

Loved ones were stranded. Friends were pulling up floorboards, raising their homes, or having to move entirely. Some are still dealing with the damage the storm left behind to this day.

Here in highly flood-prone regions like ours, flood insurance is commonplace, and for many homeowners, it's downright required. But do you need it on your upcoming home purchase? And if you do, how do you go about securing a policy? Let's take a look.

What is flood insurance?

Flood insurance is just what it sounds like: an insurance policy designed to cover losses related to flooding and flood-caused damage. It's technically a type of "catastrophic" insurance, as it goes beyond what a traditional homeowners or hazard insurance policy would cover.

There are two types of flood insurance:

  • NFIP insurance: The National Flood Insurance Program (NFIP) offers flood insurance policies to homeowners in flood plains throughout the U.S. Private insurance companies actually issue the policies, but the rates and terms are set by the Federal Emergency Management Agency (FEMA). Any property owner can get an NFIP insurance policy as long as their community participates in the program (which most communities do).
  • Private insurance: You can also get private flood insurance policies directly from a carrier. Sometimes, these policies can be more comprehensive than NFIP programs, covering things like living expenses and relocation costs, among other items. If you're in a high-risk area, it might be something you'd consider. (Just take note: Private flood insurers don't have to insure you. If your property is deemed too risky, they may opt to drop your coverage, whereas an NFIP insurer cannot.)

Flood insurance is available for both residential and commercial properties and, like other insurance policies, carries an annual premium.

When do you need flood insurance?

The majority of homeowners insurance policies do not cover flood damage, so if you want to be sure you're protected in the event of a flood, then flood insurance is a must.

Generally, you'll want to evaluate your home's risk of flooding before opting to take on flood insurance. To start, enter your address into FEMA's mapping tool. The map will show you any flood zones near your property, and the key breaks down the annual chance of flooding for those individual zones.

If you're in an area considered moderate or low risk for flooding, you can get what's called a Preferred Risk Policy -- a lower-cost plan designed for lower-risk properties. If you're in a high-risk zone, your mortgage lender will likely require a Standard Flood Insurance Policy before they'll finalize your loan. If you're in a high-risk zone and using a federal loan, like an FHA, USDA, or VA mortgage, they will most definitely require it.

Getting a flood insurance policy

To get an NFIP policy, your county first needs to participate in the program, so check FEMA's lists before going forward. If your county does participate, you'll need to contact your preferred insurance carrier to talk about coverages, limits, and deductibles and to set up your policy.

A quick tip here: Since rates are set through FEMA, you don't need to shop around for these policies. It's usually easiest to use whoever has your car or homeowners insurance policy to snag any bundling discounts you might get as a result.

If you're looking to add private flood insurance to the mix, then you'll need to shop around. Contact a few carriers, get quotes, and make sure you're comparing apples to apples. There are several kinds of private policies, including standalone ones (high coverage limits), excess policies (designed as an addition to your NFIP policy), and endorsements (low-coverage add-on to your homeowners insurance). You'll want to make sure you're looking at the same policy type to accurately compare insurers.

The bottom line

Flooding can do serious damage. In 2019, the NFIP alone paid out more than $1.3 trillion in flood claims. And the year before? Losses clocked in at nearly $9 trillion. Want to make sure your property is protected the next time a big storm hits? Get covered -- before it's too late.

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