Flood Insurance: To Buy or Not to Buy

flood insurance options

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Flood warnings remind me of when my Massachusetts home’s newly remodeled basement flooded after a period of heavy rain. Since our homeowners’ insurance policy at the time didn’t include flood coverage, I prepared to pay for all of the damage.

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In a stroke of luck, the insurance adjusters who inspected our property noted that the basement’s sump pump, designed to prevent water accumulation, had failed. This allowed the insurance company to categorize the damage as the result of a mechanical failure rather than a flood. Insurance covered the damage. But some people are not this lucky.

Flood insurance in the United States

On average, the single most devastating property loss faced by homeowners in America is not from fire, tornado or earthquake, but from flooding.

While this disaster occurs in all 50 states, flood damage caused by water accumulation from outside of the home is excluded under standard homeowners insurance policies. Homeowners must buy flood insurance available through the National Flood Insurance Program (NFIP) and backed by the U.S. Treasury, or from a select few private insurers. In Texas, Twico is a homeowners insurance company that includes flood coverage on homeowners insurance policies in certain coastal areas.

Despite being federally subsidized and relatively inexpensive for the coverage provided, flood insurance is not a popular, voluntary purchase by homeowners when buying a home. The reasons are understandable. As a home buyer, you face myriad closing costs and escrow requirements, so an extra $400 to $500 in annual fees is easy to decline.

For existing homeowners, NFIP flood insurance may be added at any time, but there’s a waiting period for coverage. Flood insurance isn’t effective for thirty days after you purchase a policy and it also isn’t effective on a flood already in progress when you purchase it. You should never wait until a flood is actively threatening your property before you buy flood insurance because it may be too late to receive coverage.

What many homeowners don’t realize is that the average cost of flood insurance can be reduced with higher deductible policies that still cover major loss in the event of a catastrophic flood.

Home in FEMA flooding zone

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Do you need flood insurance?

If you live in a FEMA-designated flood zone, you may be required to purchase flood coverage. Flood insurance is mandatory under federally insured programs enforced against the mortgage lender. Depending on the distance from water and structure elevation, mandatory flood insurance can cost upwards of $1,500 to $2,500 or more per year.

Where the situation gets murky is when your property lies outside of a flood zone that has been delineated on a federal map. On average, more than 20 percent of flood losses occur to homes located outside of officially mapped flood zones.

There are numerous reasons for this. Flood maps are frequently out of date. Land development, paving and the loss of natural drainage can all factor into causing non-mapped flood zone properties to flood for the first time.

The worst flooding often results from storms that drop dozens of inches of rain during short time periods. Accumulated flood waters with nowhere to go mix with sewage and ground contaminates. A single inch of this toxic stew entering your home’s ground floor can require costly remediation as well as the replacement of the home’s contents, including HVAC, furniture, clothing and decorations.

Savvy insurance agents typically encourage the voluntary purchase of flood insurance for cases where there is a remote possibility of flood loss for property that lies just outside a mapped flood zone.

If you say yes to this voluntary purchase, you can best support your decision by keeping your insurance policy up-to-date. You should ensure that you have accurate descriptions of your home (e.g., square footage, number of rooms, age and materials it’s made from, etc.), including improvements and upgrades such as a remodeled basement, new roof, or HVAC system. Remember to store your inventory and insurer’s contact info away from your home, possibly in the digital cloud where you can retrieve it easily.

If you decline to buy flood insurance, you may be asked to sign a waiver to confirm flood insurance was offered and declined. The waiver builds a wall of defense for the potentially expensive and oftentimes unproductive litigation in the aftermath of a flood.

If you’re like the majority of U.S. homeowners, your family’s home is your most valuable financial asset. Opting in to voluntarily get flood insurance for a few hundred dollars a year is worth consideration. After my family’s near-miss experience, I’m glad we did.

For more information on flood insurance, use Clearsurance’s resources: