More and more floods are occurring in the United States, and not just near the coast. Homeowners need proper flood insurance coverage, but the issue is always cost.
Do I need flood insurance? How much will it cost me? What should I consider when using a flood insurance calculator?
In this article, we’ll be highlighting what goes into flood insurance costs to help you determine the right coverage for your home.
What is Flood Insurance?
Flood insurance is separate from your home insurance policies. It’s specifically designed to protect your home and belongings from flood damage.
Standard homeowner’s insurance usually doesn’t cover flood damages. As you can imagine, flood insurance is popular among property owners in flood-prone areas like the coast.
Some homeowners in high-risk areas might be required to purchase flood insurance. Mortgage lenders sometimes require it for extra protection.
However, all 50 states experience floods from backwater, oceans, and other bodies of water. Nearly 25% of floods happen in low- and moderate-risk areas.
What Does Flood Insurance Cover?
So what does flood insurance protect?
FEMA claims that you can purchase flood insurance to protect your home, personal belongings, or both.
Building property coverage protects the physical structure of your home. It also protects its foundation, plumbing, electrical, and HVAC systems.
Attached bookcases and cabinets can also be covered. Detached garages are commonly covered, but other detached structures might need their own policies.
For personal content, flood insurance protects your clothing, furniture, electronics, and other appliances. Valuables like art or necessities like food are also protected.
The payout is usually the actual cash value of your damaged property. It can also be replacement costs.
What’s Not Covered By Flood Insurance?
Flood insurance doesn’t cover moisture or mold issues that could’ve been prevented by the owner before the flood. Currency or paper documents are also off the table.
Outdoor property like decks, pools, hot tubs, and wells are typically not included. Cars are also not incorporated into flood insurance. Your auto insurance might be able to provide flood protection.
How Do I Know If I Need Flood Insurance?
If you have a federally backed mortgage and live in a high-risk zone, flood insurance is required.
The Flood Insurance Act and Flood Disaster Protection Act both created flood insurance requirements. Certain mortgage lenders require you to have flood insurance if there’s a 1% or more chance of flooding.
That 1% chance is also known as the 100-year flood zone. Private lenders might also have similar requirements, but they’re not bound by law to do so.
The National Flood Insurance Program provides policies for flood insurance. Private insurance companies offer policies as well.
Flood Insurance Requirements
Mortgage lenders have a stake in their property. This is why they require homeowners to have flood insurance.
If a homeowner abandons their property after a flood, the lenders are stuck with worthless land. This is why you’re required to have enough insurance to cover the cost of your property’s development. That or the maximum limit of coverage.
If you don’t have a mortgage, you’re exempt from this requirement. However, getting flood insurance is recommended.
How Much Flood Insurance Do I Need?
The question then becomes: how much flood insurance do I need?
The amount will differ for each home. Things like location and risk come into play.
When you’re determining your coverage, take these preliminary steps:
- Take stock of everything you own and determine what it might be worth
- Estimate how much it’ll cost to rebuild your home if disaster strikes
- Do a cost-benefit analysis of getting the maximum coverage or minimum coverage
Does it cost more to pay the maximum coverage? Or will it cost more to pay the minimum coverage but be compromised when floods actually occur?
Again, this will depend from homeowner to homeowner. Other factors, like types of coverage, will also determine costs.
NFIP is the gold standard for flood insurance coverage in the U.S. It accounts for about 95% of active flood policies.
Your homeowner’s insurance company probably offers this federal package. With NFIP, you get $250,000 in buildings coverage. You also get up to $100,000 in content coverage.
There’s a minimum deductible of $1,000 and an elevation certificate. NFIP provides solid enough coverage for most homes.
If your building coverage exceeds $250,000, however, you might want to invest in excess or private flood insurance. That means higher-value properties might not be satisfied with NFIP coverage.
Excess Flood Insurance
Let’s say your home’s rebuild value is about $400,000. With NFIP, you’d be about $150,000 short. This means you’d have to pay out of your own pocket when a flood occurs.
Excess flood insurance helps fill that gap. It’s offered by private insurance companies to give you more of a safety blanket for your higher-value property.
It’s especially useful for properties in high-risk areas.
Private Flood Insurance
More and more private insurance companies are writing their own flood insurance policies. This is because of its various benefits over NFIP.
Coverage limits are usually higher for private insurance policies. You can also get replacement cost content coverage. For high-risk properties, it might even be cheaper than NFIP.
If you’re interested, check with your home insurance provider to see if they offer flood insurance.
Flood Insurance Calculator
Choosing between different coverage all hinges on estimates. You need a good idea of what insurance is going to cost before you shop for different policies.
This is why you need a reliable flood insurance calculator. You can find multiple sites that offer these calculators.
They usually ask you about your state, your zip code, and your building’s foundation. Flood damage calculators also help you assess damage costs.
FEMA has a reliable damage calculator that’s going to help you hone in on your flood insurance rates.
Get the Right Amount of Flood Insurance
Whether you’re using a flood insurance calculator or getting a quote from an agent, optimizing your flood insurance cost is crucial. Leverage this article to strike a balance between not paying too much and being protected.
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