Insuring Your Home Through the National Flood Insurance Program

Are You—and Your Home—Ready for a Flood?

 An insurance adjuster examines flood damage to a house.
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Roberto Westbrook / Getty Images

When a flood strikes, an inch of water in your house can cause over $25,000 in damage, according to the Federal Emergency Management Agency (FEMA). To help prevent homeowners from shouldering all the costs of flood damage, FEMA established the National Flood Insurance Program (NFIP). The NFIP offers policies for businesses, homeowners, and renters in 23,000 communities. Certain types of mortgages require you to purchase flood insurance. Luckily, FEMA offers NFIP policies for all types of homes, even in high-risk flood areas.

Key Takeaways

  • Most standard homeowners and renters insurance policies don’t cover flood damage to your home or its contents.
  • The NFIP offers flood insurance for business owners, homeowners, and renters.
  • NFIP policies are available through many major insurance companies and some offer private flood insurance that can supplement NFIP coverage.
  • Flood insurance provides reliable protection that federal disaster assistance cannot guarantee.

Who Needs Flood Insurance?

Most home and renters insurance policies don’t cover flood damage. All homes lie within low-, moderate-, or high-risk flood zones. FEMA determines a structure’s risk by the zone in which it lies on a community flood map. Property owners with structures in low- and moderate-risk areas are eligible to buy low-cost NFIP coverage.

Nationally, the average NFIP claim payout was $52,000 in 2019.

Homeowners living outside high-risk areas aren’t required by law to carry flood insurance, but some lenders may require the coverage. Homeowners who have received U.S. Small Business Administration low-interest disaster loans or FEMA grants must carry flood insurance to qualify for future federal aid. If you secure financing through a government-backed mortgage, such as a Federal Housing Administration (FHA) loan, you are required to buy flood insurance for a business or home located in a high-risk area. The NFIP currently offers coverage for FHA-backed mortgages, and in November 2020, FHA proposed a rule change that would allow owners of single-family homes to also purchase private flood insurance.

Basics of an NFIP Flood Policy

The NFIP offers flood insurance for commercial and residential properties. A residential policy covers up to $250,000 in building damage and up to $100,000 in contents coverage. NFIP policies only cover damage directly caused by flooding. It does not cover non-floodwater damage such as caused by a sewer backup unrelated to a flood. Besides structural losses, building coverage includes:

  • Built-in appliances, refrigerators, and stoves
  • Detached garages
  • Electrical systems
  • Fuel tanks
  • Furnaces
  • Permanently installed bookcases, cabinets, carpeting, and paneling
  • Plumbing systems
  • Solar energy equipment
  • Water heaters
  • Well-water pumps and tanks
  • Window blinds

NFIP contents coverage covers:

  • Artwork and furs (limited to $2,500)
  • Carpets not permanently installed
  • Clothing
  • Curtains
  • Electronic equipment
  • Furniture
  • Microwave ovens
  • Window and portable air conditioners

NFIP commercial property policies cover up to $500,000 in building losses and up to $500,000 for contents.

Commercial and residential property policies feature separate deductibles for building and contents coverages.

All NFIP policies go into effect 30 days after the purchase date, except:

  • When purchasing a policy while amending or refinancing a mortgage
  • When changing coverage of an existing NFIP policy when renewing it
  • When a property sustains flood damage due to a wildfire on federal land, but only if you purchase the policy within 60 days of the fire’s containment date

When you buy a policy for property in an area newly designated as high risk, the NFIP applies a one-day waiting period, but only if you purchase coverage within 13 months of the flood risk map update. 

Where Can You Buy Flood Insurance?

You can buy commercial or residential property owner or renters NFIP policies in any community that participates in the program. Many major home insurance companies either sell NFIP policies or write and service standard NFIP policies through FEMA’s Write Your Own insurance program, including:

  • Allstate
  • Farmers
  • Homesite
  • Liberty Mutual
  • USAA

To find an NFIP carrier, use FEMA’s online insurer lookup tool.

How Much Does Flood Insurance Cost?

Currently, FEMA sets NFIP rates based on a 1970s-era risk-rating methodology, which primarily determines rates based on a property’s flood zone. But that’s about to change with the introduction of Risk Rating 2.0, which will go into effect on October 1, 2021. The agency touts Risk Rating 2.0 as offering NFIP rates that reflect the unique risk of a specific property, a simplified flood insurance process, and more accurate flood risk maps. The program will rely on new technology that delivers a more comprehensive risk assessment.

According to FEMA, the national average annual cost for NFIP flood insurance was $700 in 2019.

Risk Rating 2.0 will assess risk based on new factors, including a property’s proximity to the coast or other body of water, the types of flooding that can affect a property, and the rebuild and restoration costs of a property. Since Risk Rating 2.0 employs more rating factors, it should help alleviate the problem of large rate increases when flood maps change.

According to the American Flood Coalition, Risk Rating 2.0 could increase rates for properties located in flood-prone areas and those with high repair costs. Rates for properties with lower risk and lower repair costs should decrease. Currently, federal law caps premium increases at 18% per year.

Private Flood Insurance vs. FEMA Flood Insurance

A few companies offer private flood insurance, which has a few pros and cons. Private coverage may not be available to everyone in a flood zone, and state insurance codes may not provide the same consumer protections in all states. A private flood insurance policy may offer the flexibility of adding the coverage to a homeowners policy and feature a more affordable rate. However, some private flood insurance policies offer greater protection than NFIP coverage. For instance, Chubb’s private flood insurance policies feature:

  • Up to $15 million in property and contents coverage
  • Property and contents replacement cost coverage
  • Up to $7,500 in loss of use coverage
  • Up to $250,000 in debris removal coverage

Flood Insurance vs. Federal Disaster Assistance

Flood insurance is an insurance policy that covers your home and its contents when a covered flood event happens, even if the president does not issue a disaster declaration. With a flood insurance policy, you can rest assured that the coverage will be available to restore your home and replace your belongings.

Federal disaster assistance is not an insurance policy. Following a flood, the president may declare a natural disaster or emergency, which activates federal programs. Although not all programs are activated for every disaster or emergency, FEMA’s Individuals and Households Program may provide funding or services such as temporary housing, repair grants, rebuilding grants, and grants for dental, funeral, medical, moving, and transportation expenses. According to FEMA, the average disaster grant only provides about $5,000 per household. Before you can receive federal disaster assistance, you must register to establish eligibility.

Frequently Asked Questions (FAQs)

When does flood insurance take effect?

In most cases, NFIP policies go into effect 30 days after the purchase date. FEMA waives the 30-day waiting period under certain circumstances, like when you buy a NFIP policy when refinancing your home or you alter the coverage amount of an existing NFIP policy when renewing coverage.

What do I do if I don’t have flood insurance and there’s a flood?

If you don’t have flood insurance, you may qualify for federal disaster assistance, which could include temporary housing or rebuilding or repair grants. To establish eligibility for federal disaster assistance, you must call (800) 621-FEMA to register. To activate federal disaster assistance the president must declare an event a disaster or emergency, but all aid programs are not always available for all events.