The Truth About Buying the Cheapest Flood Insurance
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Nearly 41 million Americans live in flood zones. These regions include large swathes of the east coast as well as Louisiana and Mississippi. Since 2016, Texas has had more flooding than any other state, followed by Kentucky and Arkansas.
You don’t have to live near water to buy flood insurance, though. Torrential storms can wreak havoc on a home. Even if your mortgage lender doesn’t require you to purchase flood insurance, it can provide peace of mind knowing you are protected against a flooded house.
Today, we are going to walk you through everything you need to know about buying flood insurance. Whether you opt for cheap or comprehensive coverage, we will make sure you have the insight you need.
Let’s Start with Flood Insurance Basics
What Does Flood Insurance Cover?
Generally speaking, flood insurance comes in two forms. There is insurance to cover the value of your property, and additional coverage to protect the contents inside. Additional outbuildings beyond the main structure that’s insured require a second policy. Detached garages may qualify for 10 percent structural coverage, however.
Examples of Property Coverage
- Electrical and plumbing systems
- Stoves, dryers, dishwashers, and other built-in appliances
- Permanent carpeting
- Permanent bookshelf, cabinets, paneling, or wallboards
- Furnaces, water heaters, and heat pumps
- Window blinds
- Fuel and water tanks
- Solar energy equipment
Examples of Content Coverage
- Personal items, such as electronics, furniture, framed photos, chairs, tables and clothing
- Washing machines and dryers that aren’t built into the home
- Portable appliances, like toasters, microwaves, blenders, and air conditioners
- Carpets that aren’t permanently fixed to the floor, like area rugs
- Food, but not refrigerators
- Art, jewelry, sculptures, and other luxury items (but not precious metals, currency, or valuable papers such as stock certificates)
While property and content coverage insure many different items, there are still gaps. For instance, you can’t seek reimbursement for mold or mildew unless you can directly prove it is from a flood. Neither policy protects against other losses related to business interruption, car damage, or additional living expenses.
It is also essential to know that all water damage is not the same. Having your sewers backup, for instance, does not count unless it is a direct result of flooding. The same applies if a pipe bursts in your basement, and you end up with several inches of water on your lowest level.
If you have any questions about your policy and its coverage, you should contact your insurance agent. FEMA, or the Federal Emergency Management Agency, also has a detailed list of what is and is not covered during a flood. We’ll touch on FEMA more in a bit.
How Do I Know If I Need Flood Insurance?
If you are one of those 41 million Americans living in a flood zone, you will legally have to purchase insurance, according to FEMA. If you are unsure of whether you are in a high-risk flood zone, you can find more information here. Additionally, mortgage lenders may ask homeowners to hold flood insurance, even if it is not a legal obligation.
The ultimate decision on purchasing a policy comes down to preference and location. For instance, living in Texas or Louisiana comes with significantly more flood risk than Utah and Idaho. Even if your home isn’t near a lake, ocean, or river, there can be potential flooding.
Some of the most common causes include spring thaw, hurricanes, and heavy rain. Because of the ubiquity of these events, flooding is possible in any state—that’s why FEMA declared it the number one natural disaster in the United States.
Here is the bottom line, though: flooding is relatively uncommon. The odds that you will ever use flood insurance are lower than that of car or health insurance. This uncertainty is why only 12 percent of Americans have flood insurance, including 20 percent in coastal cities.
Still, there is always the chance that flooding could happen. When that does occur, the damages start in the tens of thousands of dollars. Having a policy can provide peace of mind for even the worst-case scenario.
National Flood Insurance Program (NFIP) or Private Flood Insurance
When purchasing flood insurance, one option is to go through the National Flood Insurance Program. FEMA’s Mitigation division runs this federal program to diffuse the risk of flood losses through insurance and reduce damages from flooding. The second option is to use a private insurance company.
If you buy through NFIP, you must get the policy via an insurance company or agent. You can’t buy it directly from the government. Plans come with fixed premiums and coverage upwards of $250,000 in damages. When it comes to your rate, those vary depending on the age of your home, location, and property value.
The benefits of NFIP are that anyone can apply and receive reliable coverage. Plus, insurers handle the claims process to more readily facilitate any reimbursement. That said, NFIP plans don’t include coverage for additional living expenses.
Private flood insurance companies are providers outside the government. Availability will depend on state and location and may or may not be cheaper than NFIP. They do, however, typically have shorter waiting periods for the coverage to become active (two weeks instead of 30 days.)
One of the benefits of a private insurer is the higher coverage total. That way, you can customize protection to your desired preferences. The cons include getting dropped unexpectedly or not receiving a renewal of your policy.
Common Myths About Flood Insurance
There are several myths surrounding flood insurance—we have already tried to tackle some of them. For example, homeowners and flood insurance are different things. Furthermore, personal belongings do not fall under the coverage of building/structure policies. Here are a couple more myths to debunk:
A few inches of water won’t hurt that much. This myth is probably the most pervasive and potentially the most harmful. Even if you only get five inches of water in your basement, that can yield damages upwards of $25,000.
Flood insurance is only available to homeowners. Anyone who owns a home or rents is eligible to have flood insurance. That includes people living in condos, apartments, and trailers, as well as businesses.
FEMA will assist me during a disaster, even if I do not have insurance. The caveat here is that FEMA assistance comes after a federal declaration recognizing the flooding incident. That happens less than half the time in flood cases. If the federal government does make the declaration, only then may homeowners receive a low-interest loan to rebuild their home.
How to Find Affordable Flood Insurance Companies
More often than not, NFIP policies will be the cheapest source of flood insurance. According to information from NFIP, the average policy cost is $699 per year in 2019. Remember, the cost will vary greatly on your location. The average policy in Connecticut, Illinois, and Massachusetts runs more than $1,000, while Florida comes in at $550.
If you are committed to getting an NFIP plan, you can apply via an insurer or agent. They are intermediaries that ensure you get the policy and coverage you need.
Another way to save money is with discounts. These are often through NFIP programs that provide an incentive for people to mitigate their chances of flood damage. One way to get more affordable flood insurance is to elevate your home. You can also floodproof your house by installing check values, securing your water heater, and improving the structure of your basement.
That said, these techniques also help you reduce costs with private insurers. If you can demonstrate that you upgrade your home to limit the likelihood of a flood claim, companies will reward you with lower premiums. If you want the cheapest possible private insurance, you should make sure to perform these upgrades in conjunction with a rudimentary policy.
Is Private Flood Insurance Cheaper?
Generally speaking, the rule of thumb is that you should consider NFIP or private flood insurance if your possessions are worth more than $100,000, and your home is worth more than $250,000. Let’s say you meet those thresholds. The next question is whether to get public or private insurance.
More often than not, private insurance will be more expensive, because clients have more flexibility when it comes to coverage options and totals. That said, it is challenging to project average costs because each private policy will vary by state and home value.
Higher limits – The best reason to select private flood insurance is to get a higher limit. NFIP only offers coverage up to $250,000, which for many homeowners, is not enough. A private practice should be able to double that total, especially if you live in a low-risk zone. For example, Homeowners Choice Property and Casualty Co. offers coverage up to $500,000.
Also, it is possible to opt for private insurance and pay less than NFIP. While that is the exception to the rule, private insurers may be more competitive in regions with more significant flood risks and, therefore, greater diffusion of coverage. According to Milliman, a consulting company, a majority of single-family households in Florida, Louisiana, and Texas are eligible for lower premiums.
Greater variety – The second advantage of private insurance is its range of capabilities. This feature is especially useful if you have valuable possessions. That can include but is not limited to cars, jewelry, art, furs, and collectibles. NFIP lumps all the above into one category and will typically pay up to $2,500 for damages to these items. A private insurer will assess the values individually and rate the policy accordingly.
Additionally, private insurance can provide benefits, such as temporary relocation and shorter waiting periods. They are also more likely to give you a real-time assessment of your property and its risk. That way, you can more adequately understand the potential flooding hazards and what you can do to mitigate their impact.
Limited availability – Just because you want private flood insurance doesn’t mean you can get it. Even though it is a $4.75 billion industry, there are plenty of gaps across the country. In fact, many states don’t have legislation explicitly regulating private flood insurance.
Less reliable – Many flood insurance companies are young and unproven. Before 2014, flood insurance was a rare commodity, and their increasing presence is only due to new regulations that paved their way. It is difficult to determine how they will react in the face of a natural disaster.
The manifestation of this issue comes when financing a home. Many mortgage lenders won’t accept private flood insurance because it comes with a higher risk for proper coverage. Currently, there is legislation under consideration that would make private flood insurance acceptable for homeowners with federally-backed mortgages.
Homeowner Tips to Reduce Your Flood Insurance Costs
Why pay more for flood insurance than you have to? Thanks to a series of discounts and tips, you can protect your home and your wallet. Here are a couple of ways to ensure you get the best possible price on your flood insurance.
Reduce or Eliminate Flood Insurance Surcharges and Extra Costs
NFIP policies come with federally-mandated fees and surcharges. One recent example is a surcharge from April 1, 2015. It required all policyholders under the Homeowner Flood Insurance Affordability Act of 2014 to pay between $25 and $250. The amount varied based on the use of the building and type of policy.
Most single-family homes received a $25 surcharge. The same went for tenants or renters. The $250 surcharges applied to more sizeable buildings. This legislation came to fruition to more accurately cover the structural risk associated with flooding in all communities.
It is unlikely that fees and surcharges will make or break your insurance policy. Still, you should shop around before buying to see what extra charges you might face. That way, you can get the most competitive rates and terms for your coverage.
Make Adjustments to Your Property
As mentioned above, NFIP and private insurers will reward homeowners with discounts for making adjustments to their property. These adjustments must lower the likelihood of flood damage. Once a homeowner makes these necessary additions, an agent will approve them and reduce the respective premium.
Homeowners in high-risk zones can save the most money with an elevation certificate. You can raise the structure of your home to reduce the amount of water that enters. Insurers determine premiums based on the floodplain height, the house height, and how much water could potentially enter. An elevation certificate can cut premiums in half.
The other way to improve your home is with structural enhancements. These options work to retrofit a home or business in case of any adverse weather. Relocating your home to a higher floodplain is technically the best solution, though there are three more viable options:
The idea is to create a watertight structure below the level that needs flood protection. The floodproofing prevents storm waters from entering because it seals the walls with impermeable materials. That can also include supplemental masonry and concrete.
Some examples of dry floodproofing include watertight shields on windows and doors, such as a low fall around basement entrances. Homeowners can also install mechanisms to prevent sewer backups. These adjustments are typically more cost-effective than retrofitting and don’t necessitate new land.
The cost of these adjustments will depend on the size of the project. Adding caulking, sealant, acrylic latex, and other waterproof materials will usually cost $2.50 to $3.50 per foot. High-end materials, like bentonite grout, can retail for $20 per linear foot.
The goal is to reinforce the structure of a home or apartment in case of invasive water. That can mean modifying a crawl space or basement to ensure structural soundness. These measures provide equal internal and external hydrostatic pressure so that walls and floors are less likely to give way.
A specific example is to install flood vents so that the home has a permanent opening in its floodwalls. These additions require retrofitting with a minimum total of two vents. The rule of thumb is to have one square inch of vents per square foot of enclosed floor area. So, a 2,000 square foot home would need 14 square feet of flood vents.
Wet floodproofing is not practical for all situations. The implementation process requires extensive cleanup and can’t protect a home from high-velocity floods. Homeowners may also have to maintain the adjustments periodically.
These are barriers for holding back any floodwaters. If you want to pursue this route, you have to first get approval from SEMSWA. The stormwater management service ensures the plans are actionable and can lower the risk of flood damage. It is worth noting that floodwalls won’t remove a home from the FEMA Flood Insurance Rate Maps.
NFIP will provide a discount depending on the flood protection in your community. The rates range from five to 45 percent in savings. The initiative is to incentive communities to put in flood protection mechanisms to save lives and homes.
The percentage you earn corresponds with a points system. You can find a comprehensive outline here, though, at its simplest, it rewards people for providing flood information, mapping, regulations, and preparedness. For instance, preserving open space and relocating vulnerable buildings will yield the most substantial savings.
Other small discounts come from developing a floodplain map, and real estate agents disclosing flood hazards to prospective buyers. There is even a discount for maintaining a database of flood information. Currently, the only community with a 45 percent maximum discount is Roseville, CA.
Similarly, you can get a Letter of Map Amendment (LOMA), which changes the designation of your flood zone. If you are in a high-risk area, you may be able to move to a low-risk one. LOMA provides federal documentation certifying this claim, which can save homeowners up to 90 percent on premiums and even drop mandatory insurance altogether.
FEMA Assistance Grants
Flood insurance is the best way to protect your home from catastrophic water damage. If you do not have coverage and a flood hits you, there are still methods of recourse. FEMA provides loans through the Small Business Administration to help homeowners repair flooding damage to their property and possessions.
Homeowners in federally recognized disaster zones are eligible for FEMA grants. That would include many homes in New Jersey and New York during Hurricane Sandy in 2012. During that case, FEMA would step in to compensate people with funds so that they can return their property to its original condition.
Typically, these grants can reach up to $33,000. Even if you are eligible to receive one, you will likely receive a fraction of that. During Hurricane Sandy, homeowners got an average of $8,016.
Anyone can apply for these grants, whether they have flood insurance or not, as long as they are in a federally recognized disaster area. FEMA determines the total value of the grant on an individual basis. Here are some of the considerations:
- The geography of the home
- The accessibility of the home
- Whether or not you live at the residences for a majority of the year
- Whether you are a U.S. citizen or another form of a qualified resident
- Whether existing coverage or other types of insurance cover your current expenses
Once you receive a grant, the money can only go towards making your home inhabitable again. That means adding an extra bedroom with the grant money is not possible. Many renovations go towards structural, electrical, and HVAC systems.
While the grants will not cover the entire cost of these repairs, they can go a long way. Additionally, FEMA may pay for temporary relocation for one to 18 months, depending on the severity of the flood. Other expenses, such as medical and funerals, are possible under these grants too.
About the Author: Kris Lippi is the owner of ISoldMyHouse.com and the broker of Get LISTED Realty. He actively writes about real estate related topics such as buying and selling homes, how-to guides for around the house and home product recommendations. He has been featured in Inman, Readers Digest, American Express, Fit Small Business, Policy Genius, Lending Tree, GoDaddy, Manta as well as other major websites. Read more about us here.