We’re in the midst of flood season — and although severe weather in Europe and Asia is taking the majority of the attention, climate change is delivering heavier rain to previously unaffected areas. Flooding is already the most frequent natural catastrophe in the United States, causing an estimated USD 20 billion in damage in 2021, according to the non-profit flood research organization, First Street Foundation in New York.
As per the Federal Emergency Management Agency, flooding has impacted 99 percent of the US counties in the last twenty-five years, and more than 40 percent of the federal flood insurance claims submitted between 2014 and 2018 were outside of the flood zones which were high in risk. Indeed, in 2019, the average yearly cost of flood insurance under the National Flood Insurance Program was USD 700, but the average claim payment was USD 52,000.
Flooding can be devastating for your house and your bank account. Additionally, the majority of conventional home insurance plans exclude coverage for floods. However, if you live in a hurricane-or flood-prone region, with a flood insurance policy, you can protect yourself.
With plans usually requiring 30 days to activate and rates for homeowners in high-risk regions set to increase in October 2021, now may be the ideal time to lock in a cheap rate. Continue reading to learn about flood insurance in detail, including the types of coverage available and the costs associated.
Understanding Flood Insurance
Flooding may occur as a consequence of severe rainfall, snowmelt, or storms, but it can also occur as a result of failing dams or storm drain obstructions. Flood insurance complements your standard home insurance policy – which often excludes coverage for flooding – by providing coverage for the structure and contents of your home if they are damaged by floods.
While the majority of homes get flood insurance through NFIP, private flood insurance plans are becoming more popular since they provide more comprehensive coverage at a cheaper cost. The price gap has widened further since the NFIP revealed its new rating methodology, which has the potential to result in significant rate hikes throughout the nation.
Each house in the nation is given a flood zone, which is classified as low-, moderate-, or high-risk. On the flood zone map by FEMA, you can determine your risk level (Letters A or Vindicate high-risk zones). If you have a government-backed house loan (FHA, USDA, or VA) and own a property in a high-risk region, your lender will ask you to get both homeowners’ and flood insurance. Flood insurance is not required for renters and homeowners in moderate-and low-risk flood regions or homeowners with conventional mortgages in high-risk areas.
Flood Insurance: How does it work?
Flood insurance operates similarly to other types of insurance. You pay a monthly or yearly premium; in the event of a flood, you get cash to restore your property (as per the specifics of your flood insurance policy terms).
How much is flood insurance? NFIP coverage is yearly insurance that renews automatically. At the moment, the limits are set at USD 250,000 for the building, and for “contents coverage”, it is USD 100,000, which covers the contents of your house. Private flood insurance may provide longer coverage terms and larger policy limits of up to USD 500,000 for the building and USD 250,000 for the contents. While larger deductibles result in cheaper premiums, they may result in a greater out-of-pocket expense if you make a claim.
Typically, a waiting period of 30 days exists between the time you purchase flood insurance and the time it becomes effective. This waiting time may be waived if the following conditions are met:
- When you refinance your house, you get flood insurance.
- You purchase flood insurance after the occurrence of flooding on burned federal property as a result of a wildfire, and the policy is purchased within 60 days of the blaze’s containment date.
- Your property has been remapped into a flood zone with a high risk of flooding, and you purchased insurance within 13 months after the map update. In this instance, the waiting time is just one day.
Private flood insurance typically has a waiting period of 14 days and provides more comprehensive coverage than NFIP insurance.
What does flood insurance cover?
The coverage provided by flood insurance is the same regardless of whether it is purchased individually or via the National Flood Insurance Program. Typically, structure coverage comprises the following:
- Appliances that include heat pumps, water heaters, furnaces, ovens, stoves, refrigerators, dishwashers, etc.
- Foundation walls, anchoring systems, stairwells, carpets, bookshelves, paneling, and cabinets that are permanently placed
- Fuel Tanks
- Solar Energy Systems
- Electrical and plumbing systems
- Window blinds
- Detached garages
If you need to replace or rebuild your whole house, you must adhere to the 80 percent rule: the given property must be your main residence for at least 80 percent of the year, and you must have a policy that gives coverage of at least 80 percent of the home’s value.
Contents coverage, which protects what is included inside your building, usually comprises the following:
- Portable air conditioners
- Curtains
- Microwaves
- Dryer
- Washer
- Furs, fine arts, and jewelry up to USD 2,500
- Runners and rugs
- Kitchenware, electronics, clothes, furniture, etc.
Contents coverage is priced at real cash value, which compensates for the damaged property depending on its depreciated value.
Typically, flood insurance does not cover the following items:
- Additional living expenses
- Temporary housing
- Moisture, mildew, or mold damage
- Any property that is outside the home, such as landscaping or septic systems, hot tub, swimming pool, fence, patio, or a deck.
- Valuable papers such as bond certificates, stock, currency, and cash
- Precious metals
- Cars
- Items and furniture that have been stored in below-ground rooms or the basement
Basements and below-ground dwelling areas are covered on a limited basis. Drywall damage and built-in appliances are usually covered in these locations, but most personal belongings, window treatments, paneling, bookshelves, and floor coverings are not. When a flood threat is near, the NFIP advises relocating goods stored underground to higher levels to avoid or minimize damage.
Private flood insurance policies may provide enhanced coverage options such as increased limits for home and possessions coverage, swimming pool repair, business interruption coverage, and extra living cost coverage.
How much is the flood insurance cost?
In 2019, the average annual flood insurance cost via the NFIP was USD 700. Renters and homeowners in moderate-and low-risk flood zones may buy preferred risk insurance, which starts at USD 100 per year and provides the same coverage as standard risk plans.
Flood insurance cost via the NFIP is anticipated to rise in October 2021 for homes in moderate to high-risk regions, when the NFIP implements a new equitable pricing methodology that more accurately reflects a home’s flood risk. Around 23% of homes will experience an immediate savings of USD 86 per month under the new model, but the majority of homeowners should anticipate paying somewhat more, according to FEMA. Currently, it is anticipated that 66% of NFIP policyholders will receive monthly increases of up to USD 10, 7% will see monthly increases of up to USD 20, and 4% will see monthly increases of more than USD 20. You should anticipate paying a higher premium for insurance if you reside in a high-risk region.
If your house floods and you are not insured, you may be unable to obtain government help. Federal disaster assistance is accessible only when the president declares a federal catastrophe – and this help is often restricted to a USD 5,000 loan that you must return.
Do you need flood insurance?
Well, if you reside in a flood-prone area, you may be forced to get flood insurance. Flood insurance is not required in this case. Homeowners have the option of purchasing both house and contents coverage, while renters are only eligible for contents-only flood insurance.
