Everything to Know About Flood Insurance Coverage (2024)

Real Estate flood insurance is probably not on your radar if you have never lived in a flood plain.

For homeowners who do not live directly in a flood zone, flood insurance is likely something you have never considered.

Many homeowners may not even realize that their standard homeowner’s insurance policies do not cover the home in a flood.

If you are buying or selling a home and the property is in a flood zone, you will want to know all the ins and outs of real estate flood insurance!

Flood insurance, provided by the federal government through the National Flood Insurance Program (NFIP) through private companies and agents, is a valuable asset for nearly any structure.

In my experience as a homeowner I have never had the need to purchase flood insurance. However, over the years a few of my real estate clients have.

When purchasing a home, it is essential to have a firm grasp of how flood insurance works before moving forward.

Here is some background to help people understand the benefits of this type of protection and what they should know about it.

Buyers and sellers of homes should be keenly aware of the meaning of flood insurance and how it protects you.

What is Flood Insurance?

Flood insurance is a policy that covers property damage from flooding. Unlike standard homeowner’s insurance, it explicitly addresses water overflow or accumulation losses.

It is Managed by FEMA’s National Flood Insurance Program (NFIP).

The insurance safeguards homeowners, renters, and businesses against the economic impact of floods. Policies are available through a network of insurance companies and NFIP Direct, accommodating building and content coverage.​

The need for flood coverage is underscored by the fact that floods can occur anywhere, and just one inch of floodwater can cause significant damage.​

​Most homeowner and renter insurance policies do not cover flooding damage, making separate flooding insurance vital for comprehensive protection.

Coverage can include structural damage, electrical and plumbing systems, appliances, and personal belongings.​

Policies are vital in high-risk areas, where it may be required for homes with government-backed mortgages. However, considering floods can also happen outside these areas, broader protection is recommended.​

​The policy pays out regardless of whether a disaster has been officially declared, contrasting with federal disaster assistance, which may come in repayable loans or smaller grants.​

Individuals interested in purchasing are advised to contact an insurance agent. The policy terms and costs can vary, influenced by location, flood risk, and the specifics of what’s covered.​

Coverage is critical in preparing for and mitigating the financial risks of flooding, providing peace of mind and support in the aftermath of a flood event.

What Does It Cover?

Flooding insurance offers protection against various losses stemming from water-related disasters. Here’s a detailed list of what it typically covers:

Building Property

• The insured building and its foundation.
• Electrical and plumbing systems.
• Central air conditioning equipment, furnaces, and water heaters.
• Refrigerators, cooking stoves, and built-in appliances like dishwashers.
• Permanently installed carpeting over unfinished flooring.
• Permanently installed paneling, wallboard, bookcases, and cabinets.
• Window blinds.
• Detached garages (up to a certain percentage of the total policy value).
• Debris removal.

Personal Property

• Personal belongings such as clothing, furniture, and electronic equipment.
• Curtains.
• Portable and window air conditioners.
• Portable microwaves and dishwashers.
• Carpets not included under building coverage (like those installed over wood floors).
• Washers and dryers.
• Freezers and the food within them.
• Certain valuable items, such as original artwork and furs (up to a specific value).

Additional Coverage

• Costs associated with protecting your property from flood damage (sandbagging, etc.).
• Reasonable expenses incurred while protecting insured property (like storage fees).
• Cleanup expenses.

It’s important to note that policies vary by location and provider, and there are typically exclusions and limitations, such as damage caused by moisture, mildew, or mold, that the homeowner could have avoided.

Always review your specific policy details for comprehensive coverage information.

How And Where Can You Purchase Coverage?

Purchasing flood insurance is critical for homeowners and renters in flood-prone areas.

Here’s a comprehensive review of how and where to buy it:

Before buying, assess your flood risk with tools like FEMA’s Flood Map Service Center. This will guide your insurance needs.

The National Flood Insurance Program (NFIP)

• FEMA’s NFIP offers flood insurance to homeowners, renters, and businesses.
• Available in participating communities. Check if yours participates on FEMA’s website.
• Policies can be purchased through most insurance agents.
• Provides building and contents coverage separately; consider buying both.

Private Flooding Insurance

• Private insurers might offer these policies more coverage options and higher limits than NFIP policies.
• Shop around and compare policies for the best rates and coverage.
• Use online comparison tools or work with an insurance broker to find the best deal.

The Purchasing Process

• Contact an insurance agent or broker. Please provide them with details about your property.
• Decide on the type and amount of coverage you need.
• Complete an application and pay the premium. Note there’s typically a 30-day waiting period for new policies to take effect.

Cost Considerations

• Premiums vary based on location, flood risk, deductible, and coverage amount.
• Higher deductibles can lower your premium but mean more out-of-pocket costs during a claim.

Review and Renew

• Annually review your policy and property values to ensure adequate coverage.
• Remember that flood risk can change, so update your policy as needed.

Whether you opt for an NFIP policy or private flood insurance, it protects you against potential damage. Remember, homeowners’ insurance policies do not typically cover flooding damage, making it a vital separate purchase.

What is The National Flood Insurance Program?

The National Flood Insurance Program (NFIP) is a federal initiative to provide affordable protection to homeowners, renters, and businesses in participating communities.

Here’s a detailed overview:

• Establishment: The NFIP was established by Congress in 1968 through the National Flood Insurance Act. It aims to reduce the impact of flooding on private and public structures.
• Administration: The Federal Emergency Management Agency (FEMA) manages the NFIP. FEMA works to improve floodplain management and mitigate future flood damage.
• Eligibility: To be eligible for NFIP coverage, a community must participate in the NFIP and adhere to floodplain management regulations set by FEMA.
• Coverage Offered: The NFIP offers two types of coverage: building property, covering the structure itself, and personal property, covering the contents.
• Cost: Premiums are based on factors like flood risk, location, type of coverage, deductible amount, and the age and construction of the building.
• Limitations: NFIP policies have coverage limits. The maximum coverage for residential properties is $250,000 for the building and $100,000 for the contents.
• Mandatory Purchase Requirement: Homeowners with mortgages from federally regulated or insured lenders in high-risk flood areas must buy flood insurance.
• Community Involvement: Participating communities agree to adopt and enforce floodplain management ordinances that meet or exceed FEMA guidelines.
• Availability: NFIP policies can be purchased through licensed insurance agents and companies participating in the NFIP Direct program.
• Waiting Period: There’s typically a 30-day waiting period from the date of purchase before a new policy goes into effect.
• Risk Assessment Tools: FEMA provides resources like the Flood Map Service Center to help property owners understand their flood risk.

The NFIP is crucial in national disaster preparedness by providing insurance coverage and encouraging communities to enforce sound floodplain management.

What is The Cost of a Flood Insurance Policy?

The average cost of flood insurance on a home varies significantly based on location, flood risk, and the specifics of the coverage chosen. As of April 2023, the national average for a flooding policy through the National Flood Insurance Program (NFIP) was approximately $700 annually.

However, premiums can be substantially higher in high-risk areas, sometimes exceeding $1,000 annually. It’s important to note that these figures can fluctuate based on changes in policy, flood zone reclassifications, and other factors.

Essential Considerations

• Location: Properties in high-risk flood zones typically face higher premiums than those in moderate- to low-risk areas.
• Flood Zone Designation: FEMA’s flood maps determine your zone; high-risk zones (like AE or VE) generally incur higher insurance costs.
• Type of Coverage: Building, contents, or both. Covering both increases the premium.
• Coverage Limits: Higher coverage limits mean higher premiums. Choose based on the value of your property and belongings.
• Deductible Amount: Opting for a higher deductible can lower your premium but increases out-of-pocket costs during a claim.
• Building Characteristics: Factors such as the age of the building, construction materials, and elevation relative to the Base Flood Elevation (BFE) affect rates.
• NFIP vs. Private Insurance: NFIP policies have standardized rates, while private insurers may offer competitive pricing based on their risk assessment models.
• Grandfathering: Properties built to code during construction and remapped into a higher-risk zone may qualify for lower rates.
• Discounts: Some communities participating in the NFIP’s Community Rating System (CRS) receive discounts on premiums based on the community’s floodplain management activities.
• Average Cost: As mentioned, the average NFIP premium was about $700 annually but can exceed $1,000 in high-risk areas.
• Policy Fees and Surcharges: NFIP policies include additional fees and surcharges, such as a federal policy fee, HFIAA surcharge, and reserve fund assessment.

It’s essential to get a personalized quote from an insurance agent to understand the specific cost for your property, as these factors can lead to significant variations in premiums.

How Do You Check if a Home is in a Floodplain?

• Visit the FEMA Flood Map Service Center website at Flood Map Service Center.
  Enter the home’s address in the search bar and hit “Go.”
• Review the flood map to see the home’s flood zone designation.
• Zones labeled A, AE, AH, AO, AR, A99, V, VE, or V1-V30 indicate high-risk flood areas.

Some local government websites also offer flood risk information specific to their region. Consult local authorities or an insurance agent for detailed and personalized advice.

Who Should Buy Flood Insurance?

Shockingly, 25 percent of claims come from homes in medium or low-risk flood zones. This is because while floods are commonly caused by rising water, such as lakes or rivers, they can also be due to melting snow, significant amounts of rain, hurricanes, water backup, and other everyday household experiences.

Without flooding insurance, the damage caused by the water will most likely have to come out of the homeowner’s pocket. Owners should consider buying, even in low-risk areas.

On the other hand, for those who own homes in a high-risk area, it should not even be a question of if they will get flood insurance.

On the Flood Insurance Rates maps, those in the high-risk zones stand an approximate one in four chance of being flooded throughout the life of the mortgage. With such a high risk, the insurance can become a considerable lifesaver when repairing a home after an unfortunate flood.

Anyone in a community participating in the NFIP can purchase flood insurance. Those who live in Coastal Barrier Resource areas or Otherwise Protected areas are not eligible to purchase National Flood Insurance.

Homes or buildings entirely below ground or out over water are not covered either. These people should research and discuss with their realtors to learn the best ways to protect their homes.

Understanding How Flood Insurance Works

As discussed, Real Estate flood insurance is a separate type of insurance from standard homeowners’ insurance.

Approximately ninety private companies and 60,000 private insurance agents sell National Flood Insurance and can help supply policies to those looking to purchase an agreement.

Homeowners should be aware that when they purchase real estate flooding insurance, there is a thirty-day wait period before the policy goes into effect.

This means that homeowners can not buy insurance because they hear on the news that the storm of the century is approaching them. If a flood occurs and damages the home within that thirty-day wait period, the house will not be protected.

On the other hand, if the homeowners purchase a policy while taking out their mortgage, the thirty-day wait period does not apply.

That is why buying coverage initially is best rather than waiting to see if it will be necessary. Waiting to purchase the policy places the home at unnecessary risk.

Some mortgage lenders will require real estate flood insurance for the loan, in which case the lender may escrow the premiums to ensure coverage.

Benefits of Real Estate Flood Insurance

Many homeowners mistakenly believe that floods will not happen to them, and if they do, their homeowners’ insurance will help. Unfortunately, as previously discussed, everyone is at risk for floods, and homeowners’ insurance policies do not cover flooding.

Another misconception is that the federal government will help should the flooding be caused by some natural phenomenon.

This is also not true unless the president declares a disaster zone. Real Estate flood insurance offers homeowners peace of mind, knowing they will be covered should water cause damage to their home.

Cleaning up after a flood or any home water damage is a trying experience. Water in the home quickly causes mold issues and even structural damage in just a few days, and it can be challenging to dry out the area thoroughly.

Anything in the flooded area, including boilers, water heaters, washing machines, and more, is often damaged if not destroyed.

Bad flooding can require calls to professional restoration specialists. The insurance helps homeowners tackle the cleanup and repair costs so they do not have to pay entirely out of pocket.

What can sometimes be troublesome about the need for flood insurance is when a flood map changes. In a recent home sale in Franklin, Massachusetts, the seller was never required to have a policy.

Flood Maps Can Change

During the time of home ownership, however, the flood maps had been changed, creating the need for the buyer to purchase it to get a loan. As you can guess, the buyer was not too happy to find out they had this unexpected out-of-pocket expense.

Realizing they could potentially lose a sale, the seller agreed to contribute a large chunk of funds to satisfy the buyer.

Home sellers need to be aware of the steps that must be taken to protect their property and sell their home in the future.

The FEMA flood maps changed in 2013, along with the phase-out of subsidization of insurance rates for the following types of properties in flood zones: second homes, multi-family homes, commercial properties, and properties that have experienced recurring damage above the value of the building.

Crucial With No Mortgage

If you are lucky not to have a mortgage on your property, the need for insurance protection may not have crossed your mind. In all the years of living at your home, you may never have thought about a policy for flood damage. However, if you are considering selling your property shortly, it is critical to know the insurance costs.

While you may choose not to carry this insurance, the next buyer will almost certainly require you to have it. If the purchaser of a home in a floodplain has to get a mortgage, which most buyers do, the lender will mandate flood insurance on the house.

The amount of required coverage will become crucial as it will affect the overall value of your property. Will the cost only be a few thousand, or will it cost the buyer tens of thousands? This is a crucial question you should have the answer to before you list your home for sale with a Realtor.

Conclusion

When buying a home where the need for coverage exists, due diligence is critical. You must find the right person to handle the purchase and the appropriate coverage.

With a cash purchase, you should never discount the importance of having a proper insurance policy.

Other Real Estate Flood Resources

• How to plan for a flood and if flood damage occurs by Ready.Gov.
• Check flood maps to see whether you are considering purchasing real estate in a flood zone via Floodmap.net.

Use these additional real estate flood insurance resources to make an informed decision when buying and selling a home. Hopefully, you now have a better understanding of how it works.

About the Author: Bill Gassett, a nationally recognized leader in his field, provided information on what to know about home flood insurance. He is an expert in mortgages, financing, moving, home improvement, and general real estate.

Learn moreabout Bill Gassett and the publications he has been featured in. Bill can be reached via email at billgassett@remaxexec.com or by phone at 508-625-0191. Bill has helped people move in and out of Metrowest towns for the last 38+ years.

Are you thinking of selling your home? I am passionate about real estate and love sharing my marketing expertise!

I service Real Estate Sales in the following Metrowest MA towns: Ashland, Bellingham, Douglas, Framingham, Franklin, Grafton, Holliston, Hopkinton, Hopedale, Medway, Mendon, Milford, Millbury, Millville, Natick, Northborough, Northbridge, Shrewsbury, Southborough, Sutton, Wayland, Westborough, Whitinsville, Worcester, Upton, and Uxbridge MA.