Flood Insurance: Who Needs It?

If you live in a community where flooding is common, and are in the process of purchasing a home, friends or family may ask you if you “need” flood insurance. What they are generally asking is whether your mortgage company requires you to maintain flood insurance on the property or whether you get to make that choice for yourself. Regardless of whether your mortgage company requires you to carry flood insurance or not, you should consider it.

What Is Flood Insurance?

Flood insurance pays to repair your home or replace your personal property if a flood occurs. According to FEMA, a flood is defined as:
A general and temporary condition of partial or complete inundation of 2 or more acres of normally dry land area or of 2 or more properties (at least 1 of which is the policyholder’s property) from:

  •  Overflow of inland or tidal waters; or
  •  Unusual and rapid accumulation or runoff of surface waters from any source; or
  •  Mudflow; or
  •  Collapse or subsidence of land along the shore of a lake or similar body of water as a result of erosion or undermining caused by waves or currents of water exceeding anticipated cyclical levels that result in a flood as defined above.

Standard homeowner’s insurance policies do not pay for flood damage.  

Where Do I Buy Flood Insurance?

The easiest place to buy flood insurance is through the same agent from whom you got your homeowner’s insurance. Flood insurance is underwritten by the U.S. Government, which sets the premiums. The cost will not vary because of the agent from whom you buy it. That agent will be the one you will call when you have a claim. However, the maximum coverage on the structure of a single-family home is $250,000. If you need more coverage, that excess coverage is underwritten by a variety of insurance companies which do charge different rates.

How Do I Decide if I Need Flood Insurance?

  • Your mortgage company says you do.

If you live in a flood zone, as determined by FEMA, your mortgage company will require you to purchase flood insurance. The zone is determined by the overall elevation and geography of your community as well as the elevation of your particular piece of property.

  • You or a prior property owner accepted government aid after a prior flood.

Sometimes in the case of a mass disaster, like a hurricane, that causes flood damage to a large number of homes that do not have flood insurance, the federal or state government will step in with aid. Sometimes a condition of that aid is that the home be covered in the future by flood insurance. If that restriction is on your deed, then you need flood insurance.

  • You live near a body of water, particularly a river or an ocean.

Stuff happens! ……..even if no one ever remembers it happening in prior years.

  • A big snowfall coupled with an early warm spring can cause rivers that “never flood” to do so.
  • The last “worst hurricane ever” sent water a block north of where it was headed.

Basically, anyone who lives near water needs to seriously consider carrying flood insurance, regardless of whether their mortgage company requires it.

  • You live in a community where flooding is common.

Unless you’ve raised your home eight feet in the air, if you live in a community (city or county, not just neighborhood) that floods, flood insurance should be given serious consideration.

  • Obviously, if your lot is higher up, flooding is less likely to have an impact versus if your lot is low. But, you never know when the wind will change it’s course while the rain is pouring down thus making it your turn to flood.

As the natives of New Orleans can tell you, levees can break!

  • If you can afford the flood insurance premiums but can’t afford to have your house flood.  

In general, insurance is about managing risk. If flooding has the potential to cause financial devastation, simply insure against it. Flood insurance is not typically expensive in areas that are not prone to flooding.

Floods can be financially devastating and homeowner’s insurance does not pay for flood damage. Therefore, consider your risk, ask your insurance agent for a quote, and consider whether flood insurance should be part of your family’s insurance portfolio.