What is flood insurance?
Did you know that floods are the most frequent natural disaster in the United States, affecting nearly 99% of all US counties? This statistic alone proves how necessary it can be to have flood insurance, but what exactly is it and what does it cover?
Flood insurance covers the cost of any damage to your house or belongings in the case of floods brought about by heavy rainfall, overflowing bodies of water, or storm surges. However, most types of flood insurance do not cover water damage caused by burst pipes or a water backup, but this may be covered by your homeowner’s insurance.
In the US, the average annual cost of flood insurance is about $700. Considering that just one inch of water in your home can cause up to $25,000 in damage makes flood insurance a good investment for some people, especially those living in high-risk areas. In fact, if you live in a designated flood zone, your mortgage lender may even require that you purchase a separate flood insurance policy.
However, like most insurance policies, the cost of monthly premiums for your flood insurance depends on multiple different factors.
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Factors that impact the cost of flood insurance
The type of policy you have
In general, there are two types of flood insurance policies: contents coverage and building coverage. Building coverage or contents coverage on their own is likely to be less expensive than a policy that combines the two. For example, some flood insurance companies charge premiums as little as $99 for contents coverage by itself. However, you do risk having to pay out-of-pocket for other flood-related damages.
It’s also important to keep in mind that contents coverage is usually based on the actual cash value of your belongings. This means that in the event of flood damage, you will only receive coverage equal to the worth of your belongings at the time of the flooding.
As well, not all water-based damage will be covered by your flood insurance policy, such as if you overflow your bathtub. Flood insurance also does not generally cover any expenses involved with having to temporarily relocate to a hotel or other accommodation due to flooding damage.
The risk of flooding in your area
One of the most important factors determining the cost of your flood insurance premium is the historical risk of floods occurring in your geographic area. You also don’t have to be located right next to a river or the ocean to be at medium or high risk of flooding.
However, even houses located along the same floodplain could face different food insurance rates. For example, if your house is located on a hill or at a higher elevation, it’s less likely to be impacted by flooding, which would lower your annual premium.
Even though the average American pays about $700 per year for flood insurance, those living in high-risk areas can expect to pay closer to $1167 per year, not including the cost of homeowner’s insurance.
How your home is constructed
Before providing you with a quote, flood insurance companies need to know some details about your house, including how it’s been constructed. For instance, older houses made out of outdated materials or incorrect building techniques are more likely to be damaged in a flood, thus raising your premiums.
On the other hand, some newer houses have built-in flood mitigation such as higher-quality drains and floor openings for water. These features in your house are likely to lower the cost of your flood insurance premiums.
The state you live in
The cost of flood insurance can differ greatly between states by as much as $1035. For instance, while the annual cost of flood insurance tends to be less expensive in the South, it costs quite a bit more in the Midwest and Northeast regions. Not to mention, costs can even differ greatly within the states, which is why it’s best to get quotes from your insurance broker to determine what the average price is in your region.
Even if you don’t reside in an area that is at high risk for flooding, flood insurance is still a great investment to make because of its unpredictable nature. In fact, around one-fourth of all flood insurance claims come from people in low to moderate risk areas. You never know when you might need it!
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Risk Rating 2.0
In October 2021, The Federal Emergency Management Agency (FEMA) restructured its National Flood Insurance Program (NFIP) and named it Risk Rating 2.0. In essence, the newly updated Risk Rating 2.0 system calculates flood risk differently, which likely impacts the bottom line of your flood insurance premiums. For example, the new version considers risk factors such as the frequency of flooding in a specific area, the type of flood (heavy rainfall, storm surge, river overflow, etc), your home’s distance from the nearest source of water, and the evaluation of your property, to name a few. All of these factors are supposed to help insurance agencies better evaluate your risk of flooding and to adjust the price of your flood insurance premiums accordingly.
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Ways to save money on flood insurance
While flood insurance in the US used to only be available if purchased through the NFIP, this has changed over the last several years. Now, there are many private insurance companies selling their own flood insurance policies and this increased competition helps you compare quotes from multiple companies and ensures that you find a reasonable rate.
However, there are also other steps that you can take to save money on your flood insurance policy.
Move important features in your house
One of the best ways that you can save on your flood insurance policy is taking the time to elevate features in your house that would be very costly to replace in the case of a flood or cause additional damage if they got wet. This includes electrical panels, water heaters, and other heating and cooling systems. In the eyes of an insurance company, following this advice would put you at less risk of severe damage, lowering your premiums.
Elevate your house
While this is a more drastic step, it could very much be worth the investment if you live in a very high-risk flood area. If you elevate your house above sea level or above the risk of flooding, it’s less likely that your house or belongings will be damaged, lowering your insurance premiums. You can even get an elevation certificate to verify this with your insurance agency.
Fill in your basement
Basements are at extremely high risk of being flooded, especially if your house is located at sea level or in a flood plain. Especially since there is no way for the water to drain out of your basement, it can cause severe damage to both your belongings and to the structure of the house. As such, filling in your basement (or even better, purchasing a house without one if you’re a new home buyer), should save you a lot of money on your flood insurance premiums.
In order to figure out the best flood insurance policy for you, always talk to your insurance broker to compare the costs of quotes and to discuss any measures you can take to reduce the cost of your insurance premiums.
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