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6 Things You Didn't Know About Flood Insurance

It's not expensive, but it can be more expensive if you don't have it

boat as a sofa in a flooded living room
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Hurricane Ian, a dangerous Category 4 storm, left a swath of destruction in Florida and South Carolina in September. The deadliest storm to hit Florida since 1935, Ian’s winds clocked at 150 miles an hour and packed flood surges of more than 12 feet.

Unfortunately, according to a CNN analysis of Federal Emergency Management Agency (FEMA) data, only about 25 percent of the single-family homeowners in hard-hit Lee County, Florida, have flood insurance. About half of the residents of Sanibel Island do. The number drops to 2 to 4 percent in the many inland communities that experienced catastrophic flooding. As a result, many people will struggle to get back on their feet.

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While other funds will be available from FEMA or perhaps from Congress, those funds are bound to be insufficient, Mark Friedlander, the corporate communications director of the Insurance Information Institute, told CNN. “People are going to be really disappointed when they see what funds they get and how short they are in helping them recover.”

“Flood victims might be eligible for federal disaster assistance,” says Danielle Miura, a certified financial planner (CFP) at Spark Financials in Ripon, California. The flood must be declared a federal disaster, she said. "Unlike flood insurance, which has higher coverage, federal disaster assistance usually has a low payout.”

A wake-up call

Atlantic hurricane season lasts from June through November. The widespread devastation these and other storms have caused should emphasize the need for flood insurance. Under the National Flood Insurance Act, lenders must require borrowers whose property is located within a regulatory floodplain to purchase it as a condition of receiving a federally regulated mortgage loan.

But you may need this coverage even if you don’t live on a waterfront or in a floodplain; flash floods can happen in many areas. Between July 24 and July 31 of this year, flooding hit parts of Missouri and Illinois, Eastern Kentucky, Southwest Virginia, parts of West Virginia, and the Las Vegas Valley.

Floodsmart.gov, a FEMA website, offers a trove of information about flood insurance, including a tool for estimating how much a flood might cost you. For example, just one inch of water could do $25,000 worth of damage to your home.

Flood insurance: fact vs. fiction

If you’ve never thought about this coverage, it may be due to some misconceptions. According to FEMA, these are common. Here are four common fictions about flood insurance:

You need to own a single-family home to buy flood insurance. Fact: It can also protect homes, condominiums, apartments and nonresidential buildings, and other commercial structures.

You can’t buy flood insurance if you live in a high-risk area. Fact: You can buy federal flood insurance no matter where you live if your community participates in the National Flood Insurance Program (NFIP), unless your property is in an area covered by the Coastal Barrier Resources Act of 1982.

You can’t buy it immediately before or during a flood. Fact: You can purchase flood coverage at any time, but there is a 30-day waiting period after you’ve applied and paid the premium before the policy is effective, with some exceptions.

You can’t buy it if your property has been flooded before. Fact: You can buy this coverage no matter many how many times your home, apartment or business has been flooded.

How does flood insurance work?

1. Flood insurance could protect your basement.

If your basement floods, flood insurance will cover some of it. Homeowners insurance won’t. As for damage to your possessions, the NFIP summary of coverage states that its policies cover major systems; appliances are only covered if your policy covers contents (see below). But there may be limited coverage for other belongings. It does not cover personal belongings, nor cosmetic items such as carpeting or sinks.

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2. Homeowners insurance may cover additional damage.

For example, you might purchase an endorsement or a rider to your homeowners policy to protect your sump pump. Policies and riders differ; be sure to read the fine print.

3. Flood insurance has two components: building and contents.

Building covers the structure, core systems like electrical and air-conditioning and/heating, appliances like stoves and built-in appliances such as dishwashers. There’s also a benefit amount for debris removal after a flood. Contents covers most of the personal movable items in your home, with limits for valuables like artwork and jewelry.

Your flood insurance policy will pay benefits for building coverage at replacement cost up to your policy limits, and for contents at actual cash value, says Jude Boudreaux, a CFP at the Planning Center in New Orleans, who has vivid memories of hurricanes Katrina and Ida. “So, if you paid $1,000 for a sofa several years ago, you’ll likely only get a few hundred for it today,” he says. “If you have a basement, check with your agent to determine if there are limitations for items in below-grade rooms."

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4. Flood insurance has limits and exclusions.

Flood insurance does not cover personal vehicles and exterior items like fences or hot tubs, Boudreaux adds. “And it does not provide a ‘loss of use’ benefit to pay for temporary housing,” he says.

5. The maximum coverage varies.

It’s $250,000 for building and $100,000 for contents. Commercial structures can be insured up to $500,000 for the building and $500,000 for the contents. Typically, building and contents insurance are purchased separately, with separate deductibles. Again, check your policy for the details.

6. The cost depends on a few factors.

FEMA says the average cost of flood insurance is about $700 a year. Among the factors that will determine your premium are: the flood risk (your flood zone); the deductible; the amount of building and contents coverage; the design and age of the structure, and its elevation. Increasing your deductible, elevating your property, or installing flood openings may lower the cost.

How do you buy a flood insurance policy? The NFIP has partnered with more than 50 insurance companies and agents across the country to offer the same NFIP rates. No need to shop around. To find out more, go to floodsmart.gov.