Mortgage BasicsDo I Need Flood Insurance?

Do I Need Flood Insurance?

Less than a year ago, Hurricane Ida caused severe damage in Louisiana, Pennsylvania, Mississippi, New Jersey, and New York. Flash floods ruined not just MTA subway stops but also people’s homes. While you might think that a tropical storm like Ida is unusual, extreme weather events are projected to occur more often and become increasingly intense. Floods are, in fact, the most common and costly natural disaster in the U.S.

If you own, your house is likely the single most expensive thing you own. It’s also the place where you call home, a home where memories are created with loved ones each day. You don’t want anything bad to happen to your home, which is one of the reasons that you have homeowner’s insurance. However, you may not realize that most homeowner’s insurance policies will not cover flood damage. 

That’s where flood insurance comes in. In this article, we’ll discuss:

  • What is flood insurance?
  • Who needs a flood insurance policy?
  • Do you need flood insurance in a low-risk area?
  • What factors determine the cost of flood insurance?
  • Ways to reduce your flood insurance premium
  • Get the coverage you need



What is flood insurance?

Flood insurance is a standalone insurance policy separate from your homeowner’s insurance. This type of policy provides coverage for losses due to flooding. It will cover any damage related to flooding, and the cause of the flooding doesn’t matter. For example, it could be due to rains, overflowing rivers and levies, or faulty drainage systems.

Flood insurance can also provide you with protection for property loss. After all, flooding doesn’t damage the structure of the home. It destroys furniture, electronics, and all the belongings soaked in water. In other words, with flood insurance, you don’t have to pick and choose what to include in your claim. It will cover the cost of repairing the damage to the property and replacing all of your items.

What about hazard insurance? 

Some homeowner’s insurance policies will include what’s known as hazard insurance. Hazard insurance could cover some structural damage caused by flooding, but only if it is caused by a specific hazard included in the policy. Hazard insurance will not cover or protect you from damage from most flooding, and it won’t cover any of your personal property. For example, if a hurricane causes flooding, the homeowner’s insurance will not provide you with any protection.

Who needs a flood insurance policy?

If you live in a high-risk flood area, you’ll find that most lenders will require that you have flood insurance. After all, they have a lot invested in the home by extending you the loan, and they don’t want anything to happen to the property more than you do. Therefore, it’s often written into the mortgage agreement that you will have and maintain flood insurance on the property.

If a home or business is in a high-risk flood area and has a government-backed mortgage, you will be required to have flood insurance. Remember that the insurance isn’t federally required if you aren’t in a flood zone area, but the lender you have might still require the coverage. You will want to check with the lender first before applying.

Those who live in high-risk areas and have previously received federal disaster assistance, such as grants from FEMA or low-interest disaster loans from the Small Business Association, need to have coverage. You will be required to have flood insurance and maintain it, or you will not receive any federal disaster aid in the future.

You don’t want to run into a situation where you don’t have coverage since it could mean far greater expenses for you down the road. This is especially true if you can’t get federal aid during a disaster.

Do you need flood insurance in a low-risk area?

What if you live in an area with a low risk of flooding? Maybe there haven’t been any floods in the area in decades, and you feel that you don’t need to have the coverage. Perhaps your lender doesn’t require it in this area. Even if that’s the case, you’ll find that it’s often better to have the protection you need just in case. 

Remember, floods aren’t just caused by hurricanes and heavy rains that cause rivers to rise. According to FEMA, homeowners who have a 30-year mortgage have a 26% chance of having a flood at some point. Flooding can happen for a host of reasons, and it simply makes more sense to have protection, even if the lenders don’t require it. It will provide you with more peace of mind.

Flood maps can change

Even if you live in a low-risk or moderate-risk area right now, it doesn’t always mean it will stay that way for the duration of your mortgage. The risks can change, and the flood maps will be updated to reflect those changes. If this happens, your lender might contact you and let you know that you are now required to buy flood insurance.

The costs of flooding are high

Flooding can take a major toll on you and your home. Not only is it emotionally taxing to have to deal with the damage and destruction, but it is expensive. If you don’t have flood insurance, you could be out tens of thousands of dollars. It’s estimated that even a single inch of water can cause $25,000 worth of damage to your home. A foot of water can cause more than $70,000 worth of damage, and the costs continue to go up from there.

If you don’t have flood insurance, would you have the funds to handle repairs and restoration that costs this much? The answer for most people is no. You can start to see why flood insurance is such a good investment to make, even if you aren’t in an area that’s prone to flooding.

What factors determine the cost of flood insurance?

FEMA outlines six key factors that are considered when determining a homeowner’s annual flood insurance premium.

  • The flood zone your property is in
  • The type of coverage being purchased
  • The deductible and amount of building and contents coverage
  • The location of your structure
  • The design and age of your structure
  • The location of your structure’s contents – for instance, are your utilities elevated?

Ways to reduce the cost of your flood insurance

Before October 1, 2021, the average cost of flood insurance was around $700 a year. The rates are increasing with FEMA rolling out the new pricing methodology, Risk Rating 2.0. There are, however, ways to reduce your flood insurance premium.

Lower your flood risk by elevating utilities

Instead of placing the electricals, water heaters, and heating and cooling systems in the basement or ground floor, you can elevate them to reduce the chances of them getting damaged during a flood. 

Note that you might be subject to an annual surcharge if your utilities are located below the base flood elevation.

Elevate your property

Another great and effective way to reduce your flood insurance premium is to elevate your property. The more elevated your home is from the base flood elevation, the more money you save. Of course, you should compare the construction costs and savings on the premium before starting the process.

Rally your community to mitigate risk

According to FEMA, communities enrolled in the Community Rating System may receive a discount on flood insurance. The discount is calculated based on the community’s efforts to reduce flooding risk. 

Get the coverage you need

Keeping your home safe should always be one of your top priorities. Having proper insurance that can cover all potential harm that could befall your home is a good idea. Remember, flood insurance is essential in many cases, as the lenders will require that you maintain the coverage.

Take the time to check out some providers that can offer you quality insurance that will ensure you have recourse in the event of a flood in your home. You don’t want to wait too long and regret it. Flood insurance is one of the best investments you will make for your property.