Flooding is the most frequent and expensive natural disaster in the United States. Yet, flood peril is not typically covered through most homeowners' and renter's insurance policies.
With more than 20 percent of the National Flood Insurance Program's (NFIP) claims coming from outside high-risk flood areas, those who live in areas with low-to-moderate flooding risk should understand their risk and consider flood insurance. The FEMA flood map service allows you to determine your flood risk.
Risk Level
Risk levels are divided into three categories:
High-risk areas have at least a 1 percent chance of flooding each year. Homeowners in these areas with mortgages from federally regulated or insured lenders are required to buy flood insurance.
Moderate to low-risk areas have less than a 1 percent chance of flooding each year, but there is still a possibility the area could flood. Flood coverage isn't required in these areas, but it is recommended. Some mortgage lenders still require you to have flood insurance in non-high-risk areas.
Undetermined risk areas are areas where flood-hazard analysis has yet to be conducted, but risk still exists.
Myths vs. Reality
MYTH: Only homeowners can purchase flood insurance.
REALITY: Most homeowners, condo unit owners, renters, and businesses in National Flood Insurance Program (NFIP) participating communities can purchase flood insurance. To find out if your community participates, go to http://www.floodsmart.gov or contact a community official or insurance agent.
MYTH: If you are not in a high-risk area, you don't need flood insurance.
REALITY: While mortgage companies typically do not require flood insurance for homes outside high-risk areas, more than 20 percent of the NFIP's claims come from outside mapped flood zones.
MYTH: My homeowners' insurance covers me against floods.
REALITY: Most homeowners and business insurance policies do not cover flooding.
MYTH: All flood insurance is the same price.
REALITY: The price for flood insurance varies by provider and proximity to flood zones.
MYTH: You can't buy flood insurance if your property flooded before.
REALITY: If your community participates in the NFIP, you are still eligible to purchase a flood insurance policy, regardless of flood history.
Ask These Questions Before You Buy
- Does my homeowners' insurance cover flood?
- What flood zone do I live in? What is my property's flood risk?
- What will and won't be covered?
- How much coverage should I purchase for my building and for its contents?
- When will my policy become effective?
- Will my policy provide Replacement Cost Value or Actual Cash Value? What's the difference between the two?
- Do I qualify for a Preferred Risk Policy (PRP)?
- Does my community participate in NFIP's Community Rating System (CRS)? If so, does my home qualify for a CRS discount?
- Is flood insurance mandatory for my property? Will the lender require it?
- Are there additional expenses or agency fees?
- How can I pay for my policy?
- How do I renew my policy?
To learn more about flood risks in your area, contact your local emergency management office or FEMA to look at a flood map.
This article is provided by the National Association of Insurance Commissioners (NAIC). Learn more about flood insurance from a licensed financial advisor using our one-of-a-kind Find An Advisor tool.
