Flood Insurance: Do You Need It and Is It Worth the Cost?

Laundry room Flooded.
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Insurance is designed to protect you financially when an unexpected, and sometimes catastrophic, event occurs resulting in damage and loss. But when it comes to flood insurance, you might wonder whether you need it or not — especially if you don’t live in a flood zone. 

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In 2022, flood insurance costs an average of $738 per year, according to Policygenius’s analysis of the National Flood Insurance Program data. That breaks down to almost $62 per month on top of your homeowners’ insurance. Over time, flood insurance premiums are an expense that can really add up. 

To help you decide whether you need flood insurance and if it’s worth the cost, GOBankingRates interviewed several experts. Here’s their advice. 

Why Buy Flood Insurance If You Live Outside of a Flood Zone?

“Insurance experts, consumer advocates, mortgage lenders and others have long advised that flood insurance is a wise investment for all property owners,” said Peter Waggonner, public policy and programs associate, Greater New Orleans, Inc. “This is because flood damage is not covered by other types of insurance policies, so a property owner without coverage will have to pay for any losses on their own. According to FEMA, residents outside of high-risk areas file more than a quarter of NFIP claims. As flood events are influenced by climate trends, flood insurance provides some assurance in the face of projected growth of flooding damage.”

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And even if your property is not at substantial risk for flooding now, it might be in the future, according to Matt Miller, founder and CEO of Embroker.

“Certain changes can alter the conditions of your property in relation to flooding, both man-made and natural, and failing to make periodic checks of its status could result in not being covered when thousands of dollars in damage occur,” Miller said. “Changing weather patterns, upgrades or construction on dams and flood control channels, or even the construction of a new neighborhood near your area can alter your property status from a low to high risk.”

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Isn’t There Federal Assistance for Flooding?

Federal disaster assistance is only made available when there is a presidential disaster declaration. Unfortunately, most flood events do not result in a declaration.

Is Flood Insurance Worth It?

“Flood damage is not covered by homeowners’ policies, so buying a flood insurance policy can help both home and business owners better protect their assets,” Waggonner said. “Since just a few inches of water can result in tens of thousands of dollars in damage, having such coverage can help property owners recover more quickly from a flood event. If a property owner does not have flood insurance, in order to receive federal financial assistance following a declared disaster, obtaining and maintaining flood insurance is then generally required for the duration of residence.”

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Per FEMA, 1 inch of water in a 2,500 square-foot, one-story house can cause over $25,000 in damage.

What Is and Isn’t Covered by Flood Insurance?

“Flood insurance typically covers your home’s structure; contents such as furniture, clothing, etc.; furnace, water heater and air conditioner; flooring; and flood debris cleanup,” said P.J. Miller, partner and independent insurance agent with Wallace & Turner Insurance. “It generally won’t cover outdoor property (decks, fences, etc.); temporary housing if you must relocate; mold/mildew damage that could have been avoided; money and paper valuables; and vehicles. There may be other exclusions and limitations depending on the policyholder’s situation.”

How To Buy Flood Insurance

You can purchase flood insurance through a private insurance agency or the federal National Flood Insurance Program.

What Factors Impact Flood Insurance Costs?

“Under FEMA’s new rating system, Risk Rating 2.0, there are numerous factors impacting premiums,” Waggonner said. “These include the property’s replacement cost value, distance from water, foundation type, and flood frequency. Levee quality and other location-based factors may play into certain areas’ evaluation. Of course, the traditional factors involved in insurance premiums, such as the amount of coverage you have and how much your deductible is, also impact the cost of your premium. While a property’s flood zone designation still affects flood insurance requirements, it no longer directly factors into the premium paid.”

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How To Save Money on Flood Insurance Premiums

“Since the new rating system, Risk Rating 2.0, is just fully coming online, we are still learning what actions policyholders can take to save on their flood insurance premiums,” Waggonner said. “FEMA has identified three main mitigation measures to reduce rates (elevating properties, elevating machinery, and installing flood vents), but the exact benefits of implementation are unknown. 

“We do know that for existing policyholders, maintaining an active policy is essential. That will ensure you stay on the congressionally mandated glidepath, which limits annual premium increases to 18% for primary residences, and 25% for non-primary residences and commercial properties. If you are buying a home, and there is a flood policy in place, taking over that active policy will also provide you with those glidepath protections.”

Another option to reduce flood insurance premiums is to choose a higher deductible. According to the National Flood Insurance Program, raising your deductible to $10,000 can reduce your annual premium by up to 40%.

You can also submit an elevation certificate to your insurer to see if you qualify for a premium discount. And if your community is enrolled in the Community Rating System, you may receive a discount on premiums based on your community’s efforts to reduce the risk of flooding.

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About the Author

Cynthia Measom is a personal finance writer and editor with over 12 years of collective experience. Her articles have been featured in MSN, AOL, Yahoo Finance, INSIDER, Houston Chronicle, The Seattle Times and The Network Journal. She attended the University of Texas at Austin and earned a Bachelor of Arts degree in English.
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