What Does Flood Insurance Cover?

Wellies in the flood

If you have basic insurance coverage for your home, there's no guarantee that it covers every type of accident or disaster. In fact, most homeowners insurance policies don't include coverage for major acts of nature, including earthquakes and floods, that can easily cause major damage.

Adding a flood insurance policy will cost you extra, but the additional coverage can save you a lot of money in the long run. When you opt to purchase a flood policy, your coverage could help you repair or replace belongings and cover the costs to repair damage to your home caused by a flood.

What Flood Insurance Does and Does Not Cover

You don't have to live near a dam or a major river to be at high risk of being affected by a flood. Floods, by definition, affect an area of land that would usually be dry and out of the way of the normal flow of water. High flood risk areas are often known for extreme rain and snow, could be densely populated with limited drainage, are near a body of water or reside in a geographic low spot.

Here's what you can generally expect flood insurance to cover:

  • Loss from waves, severe storms and flash floods
  • Damage to appliances, electronics and other personal property inside your home
  • Repair costs for the walls and the foundation of your home

Note that you'll need to buy separate policies to protect the physical structure of your home and your belongings inside the home. Additionally, a flood insurance policy may not protect you against every loss you incur due to a flood. Here are some of the circumstances and expenses that might not be covered:

  • Damage caused by shifting soil
  • Property destroyed outside of your home, such as trees, swimming pools, vehicles and septic systems
  • Relocation expenses during your home repair
  • Sewage backup that isn't directly caused by flooding
  • Destroyed documents or money

How Do You Know if You Need Flood Insurance?

If you live in a high-flood-risk area and you take out a mortgage through a government-backed lender, you'll be required to carry flood insurance. Other lenders may require homeowners to carry flood insurance too.

To see if you live in a high-risk area, you can search your address using the FEMA flood map. But even if you don't live in a flood-prone region, your home could be at risk. Uncontrollable factors like a poor drainage system, a broken water main, a major storm or construction in the neighborhood could affect any home.

According to FEMA, just one inch of water could cause $25,000 worth of damage, which means additional coverage could prevent a financial catastrophe if you're ever affected by flooding.

How Much Does Flood Insurance Cost?

Like premiums for homeowners insurance, flood insurance premiums vary based on a handful of factors that may be out of your control. Some of those factors include whether you live in a flood zone, the elevation of your property, and the type and amount of coverage you need.

There's no set price, but policies on average tend to cost around $700 a year. To get quotes or purchase flood insurance, you can contact the company where you get your home or auto insurance, or you search through the National Flood Insurance Program (NFIP).

How to Save Money on Flood Insurance

Some factors that determine your premium will be out of your control, but you can also take measures to reduce your policy cost. In addition to shopping around, here are some of the other ways you can bring down the cost of flood insurance:

  • Reduce your risk factors. Your insurer may offer you lower premiums if you reduce the likelihood of damage. One of the ways you can do this by moving heating and cooling systems out of flood-prone spaces, like your basement, or placing them on elevated platforms. Conduct additional research and talk to an expert or your insurer about other flood mitigation modifications you can make to your home or property that could help reduce your risk.
  • Raise your deductible. By electing to increase your potential out-of-pocket cost, you can reduce your monthly premium. Just be aware that this option will mean paying more before your insurance kicks in to cover the damage your property has sustained.
  • Improve your credit. Depending on where you live, your credit score can affect your insurance premium. You could reduce the cost of flood insurance by reviewing your credit file and working to improve your score. Rules vary by state, however, and some insurers won't consider your credit as part of your rate calculation.
  • Lock in a low rate. If you don't live in a high-risk zone, you could save money by buying insurance now and locking in a low rate. If a change in your area makes it higher risk, you could avoid the eventual rate increase.
  • See if you qualify for a discount. If you live in one of the roughly 1,000 communities that participates in FEMA's Community Rating System (CRS), you may qualify for discounts on your premium. You could also encourage officials in your community to participate. Becoming a CRS participant could help reduce flood risk factors for your home and help bring down your insurance rate.

Reducing Your Liabilities

There's more to becoming financially stable and maintaining good credit than simply having good money habits. Monitoring your credit, reviewing your budget and saving for emergencies are all great ways to keep your financial life in good shape, but they're only part of the picture.

Another important piece of financial security is protecting yourself against liability and losses. One of the best ways to do that is to maintain an adequate level of insurance coverage.

If you haven't reviewed your insurance policies and coverage amounts in more than a year, take some time to review and update them. Be sure to always maintain proper medical, auto and home insurance coverage, including flood insurance, to help you and your family stay financially secure should something go wrong.