What Is Flood Insurance?

Flood insurance is a type of property insurance that protects a home from losses caused by flooding caused by heavy or prolonged rain, melting snow, coastal storm surges, clogged storm drainage systems, or levee dam failure. A flood is considered a major event in many places, and the damage or destruction it causes is not covered if you do not have supplemental insurance.

How Flood Insurance Works

A flood insurance policy is a type of catastrophe insurance that differs from the basic hazard insurance coverage included in a homeowners insurance policy. Interior water damage caused by a burst pipe or weather events such as tornadoes and rainstorms is typically covered by standard homeowners insurance. It does not, however, generally cover destruction or damage caused by floodwaters. Property owners who live in an area prone to this type of natural disaster are usually required to obtain additional insurance.

Flood insurance works in the same way that other types of insurance do: The insured (the home- or property owner) pays an annual premium based on the flood risk of the property and the deductible selected. If flooding caused by an external event (rain, snow, storms, collapsed or failed infrastructure) damages or destroys the property or its contents, the homeowner receives cash for the amount of money required to repair the damage and/or rebuild the structure, up to the policy limit. In contrast to a standard homeowners policy, flood insurance requires a policyholder to purchase separate policies to cover a home and its contents. If the sewer backup was not caused by rising floodwaters, a separate coverage rider is required.

Flood insurance is available for all residential and commercial properties.

The National Flood Insurance Program

The Federal Emergency Management Agency (FEMA) manages the National Flood Insurance Program (NFIP), which provides flood insurance to homeowners in participating communities as well as those who are determined to be in NFIP-designated floodplains. Private insurance companies, not the NFIP or FEMA, issue the actual insurance policies.

In collaboration with the NFIP, the Federal Emergency Management Agency (FEMA) works to maintain up-to-date maps of flood zones in the United States, which are areas that are most likely to flood. FEMA has worked to keep the zones up to date as weather patterns change and intensify. For rating purposes, the zones are divided into subsections. Flooding is a moderate to low risk for properties in flood zones B, C, and X. Low risk means there is less than a 1% chance of annual flooding.

Properties located in zones denoted by an A are considered high risk. They are further subdivided, with descriptions of potential floodwater heights and estimated occurrence rates over the course of a 30-year mortgage. Properties with a V designation are similar to those found in zone A. These are high-risk areas located along the coast.

Some homeowners may be surprised to discover that they are in Zone D, which indicates that a decision has not yet been made for the area. Flood zone maps are constantly being revised (for the first time in 23 years, the maps were updated in 2008!) to account for changing weather patterns and man-made changes to the environment such as dams and levees.

Flood zone determinations can be obtained by visiting the Floodsmart.gov website and cross-referencing a property address with the flood map service center.

The Cost of Flood Insurance

The NFIP regulates flood insurance policy pricing, and the cost will not vary between issuers. If you live in a flood zone or a community that participates in the NFIP, the NFIP can help you find an insurance agent.

Your agent will consider factors such as the location and structure of your home—how close it is to a body of water and its elevation—as well as the type of coverage (replacement cost value or actual cost value) you have chosen. Pricing can be influenced by factors such as the flood zone designation, the age of the property, and the number of floors. A Preferred Risk Policy (a low-cost flood insurance policy) covers both the building and the contents of a property in a moderate-to-low risk area for a single price. Certain communities that have implemented flood-prevention measures are also eligible for NFIP discounts. As a result, annual premiums can differ greatly.

The maximum for residential structures under NFIP policies is $250,000 in building coverage and $100,000 in contents coverage. Businesses can get up to $500,000 in building coverage and $500,000 in contents coverage.

Of course, you can always seek coverage on your own, especially if you want to insure your property for a higher sum (rates for additional coverage, however, will not be regulated). Starting with the company that issues your regular homeowners policy is often a good idea.