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6 Key Things to Know About Flood Insurance​

Policies cost hundreds of dollars annually, but they could be well worth it


spinner image boat as a sofa in a flooded living room
vicnt / Getty Images

Tropical Storm Debby recently plowed through portions of the Southeast, dropping over a foot of rain in some areas, the National Weather Service says. It also caused property damage to many homes — damage that often won’t be covered by standard homeowners insurance.

Unfortunately, basic homeowners insurance policies don’t cover flooding. Moreover, only 30 percent of U.S. homes in the highest-risk areas have flood insurance, according to the Risk Management and Decision Processes Center at the Wharton School at the University of Pennsylvania.

A wake-up call

The property damage that Debby 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 policies as a condition of receiving a federally regulated home loan. (You can see if your home is in a floodplain using the Federal Emergency Management Agency’s Flood Map Service Center search tool.)

But you may want to purchase flood insurance even if you don’t live on a waterfront or in a floodplain, considering that about 25 percent of flood insurance claims occur in areas with low to moderate flood risk, FEMA says. Also, the number of properties prone to flooding is projected to climb to 16.2 million by 2050 because of climate change, predicts the First Street Foundation, a climate risk data firm.

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 cause $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 common misconceptions. Here are four often-repeated falsehoods about flood insurance:

You need to own a single-family home to buy flood insurance. Fact: It can 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. A growing number of insurance companies also offer private flood insurance.

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 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 or all of the damage, depending on the cost of repairs. (Remember, standard 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 (you’ll need a separate policy for that), nor cosmetic items such as carpeting.

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 may differ, so read the fine print.

3. Flood insurance has two components: Building and contents

Building covers the structure, core systems like electrical and air-conditioning, 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 certified financial planner 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.”

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

The coverage limits are $250,000 for the building and $100,000 for the 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 median cost of flood insurance for a single-family home is $786 per year, with houses in low- to moderate-risk areas averaging $400 to $500 a year, according to the most recent estimates. 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 the 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-regulated rates. To find out more, go to floodsmart.gov.

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