Many policyholders are unclear as to how their flood policy pays out in the event of a claim. This article will review everything you need to get the most from your flood insurance payout

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How Does Flood Insurance Work?

Flood insurance covers your property in the event of a flood. A flood is defined as an inundation of water on normally dry land. In order to make a flood insurance claim, the damage needs to result from floodwaters.

Most flood insurance policies are backed by the federal government through the National Flood Insurance Program (NFIP), an arm of the Federal Emergency Management Agency (FEMA). You must purchase NFIP policies through a local insurance provider

The coverage limits for NFIP flood insurance policies are:

  • $250,000 for building coverage
  • $100,000 for contents coverage

If the cost of replacing your property exceeds those limits, you should buy additional coverage through a private flood insurance company. Private insurers can also offer special riders to cover flood insurance exclusions.

The average cost for a flood insurance premium is between $850 and $1,200 annually, depending on where you live and the value of your property. You should also know that when you purchase your policy, you’ll be subject to a 30-day waiting period unless you’re initially purchasing your home or your home’s flood zone has been changed. 

Do I Need Flood Insurance?

If you live in a high-risk flood zone called a Special Flood Hazard Area (SFHA) and you have a mortgage on your home, flood insurance is mandatory. If your home is in a moderate-risk area, your mortgage lender may or may not require you to carry a flood policy. But it’s still a great idea to carry one. 

That’s because flood damage is particularly expensive. Even a few inches of water can cost more than $20,000 in property damage to a 2,000-square-foot home. 

Unsure about your flood risk? Visit FloodSmart.gov to review the flood maps in your area. 

What Flood Insurance Covers

Flood insurance comes in two parts. The first is mandatory and known as building coverage. It covers your home’s structure and things associated with it:

  • Foundations and anchorage systems
  • Detached garages
  • Well-water tanks and pumps
  • Sump pumps
  • Roofs and solar systems
  • Staircases
  • Electric and plumbing systems
  • Fuel tanks
  • Water heaters
  • Permanent air conditioners
  • Built-in bookcases, paneling, and cabinets
  • Permanent carpeting

The second form of coverage is optional and known as contents coverage. It covers your personal property, including:

  • Artwork, electronics, and furniture
  • Clothing, jewelry, and furs
  • Microwave oven, washer, and dryer
  • Portable air conditioners
  • Non-permanent carpeting

What Flood Insurance Doesn’t Cover

Flood insurance comes with policy limits. And it typically excludes the following unless you purchase a special rider:

  • Currency and precious metals
  • Stock certificates and valuable papers
  • Cars, trucks, and other vehicles
  • Landscaping and fencing
  • Patios and decks
  • Swimming pools and hot tubs
  • Seawalls
  • Septic systems
  • Additional living expenses (ALE)
  • Business losses caused by flooding 

Additional living expenses include temporary housing and other expenses associated with having to live outside your home. 

Your flood policy also doesn’t cover damage that was avoidable. For example, you leave a window open during a storm and your floors are damaged. And water damage that’s caused by anything other than a flood is not covered. 

That would most likely be covered under a standard homeowners insurance policy. 

How Do Flood Insurance Claims Work?

How your claims process works depends on your company and the rules of your policy. The typical steps for a claim are:

  1. You make a claim to your insurance company.
  2. Your insurer reviews the claim and assigns an adjuster.
  3. The insurance adjuster assesses the flood damage in person or through photographs and documentation.
  4. You and your adjuster submit documentation for the claim. 
  5. The claim is approved and you begin receiving compensation.  

How Does Flood Insurance Pay Out?

Depending on the extent of the damage, you may receive a lump sum or installment payments to complete the repair and replacement work on your property. Most of the time, you will not receive compensation until the claim and documentation have been received and approved. 

When your claim is approved, you will receive a check from your insurer. If your home is mortgaged, the check will be made payable to you and your lender. You will need to work with your lender to ensure that your claim money is deposited and used correctly. Speak with a representative from your lender to learn more. 

Actual Cash Value vs. Replacement Cost Value

When you buy a flood insurance policy, you will have the choice to insure yourself for the actual cash value or replacement cost value of your property. Here’s how your insurer defines these crucial terms:

  • Actual cash value (ACV) insures you for the value of your property minus depreciation. That means you receive half the value of a six-year-old water heater with a 12-year expected lifespan. 
  • Replacement cost value (RCV) insures you for the value to replace your property, whatever the cost. So that same water heater would get you whatever the cost is to replace it with a current model. 

We highly recommend choosing a policy with replacement cost value.

Flood Insurance Deductibles

With NFIP flood policies, you have deductible limits—minimums and maximums. These are:

Building Coverage of $100,000 or less Building Coverage over $100,000
Minimum $1,000 $1,250
Maximum $10,000 $10,000

When you set your deductible above the minimum, you’ll receive a discount—up to 40 percent. But if you don’t have the extra $9,000 to cover your deductible, you’ll be in trouble when you need to file a claim. 

Never set a deductible higher than what you can reasonably afford. 

How to Maximize Your Flood Insurance Claim

It can be overwhelming to be faced with a flood claim. But there are steps you can take before and after a flood to ensure you get the most out of your claim. 

Before a flood, you should:

  • Review your flood insurance policy documents. Ensure that the limits, deductibles, and coverage options meet your needs. Speak with your insurance agent if you have any questions or concerns. 
  • Ensure your home and belongings comply with the stipulations set in your policy documents. 
  • Make a home inventory of your personal belongings. Be sure to take photographs and record the value of your belongings. 
  • Complete necessary repairs and upgrades to your home to minimize damage in the event of a flood and reduce the chance of having your claim denied. 

After a flood, you should:

  • Request a copy of your flood insurance policy and review your documents again. This is to refamiliarize yourself with your policy’s terms. 
  • Contact your lender and ask about any specific needs your lender has. Your lender may also provide assistance with your claim or send a third-party adjuster to review your damage. 
  • Take photographs of the damage. Be sure to do this before you throw away anything you plan to claim. Be sure to store the photographs safely on more than one device.
  • Get a second opinion anytime you think your insurer has underestimated your property loss. 
  • Complete your documentation and Proof of Loss form carefully. If you have any questions, don’t hesitate to reach out to your insurer. 

Once you document your property damage, you can most likely begin to clean up some of the water damage. But only do so if this is safe. Removing collected water, running a dehumidifier, and cleaning will reduce the chance of further water damage. It also reduces the likelihood of mold and mildew damage. 

Maximizing Your Flood Claim When There’s a Declared Disaster

If the president has declared the flooding in your area a natural disaster, you can apply for disaster assistance. This is a one-time grant that helps property owners cover some of the costs not covered by flood insurance. For example, your hotel stay. 

You may also qualify for a government-backed loan to help you cover the cost of repairs and displacement. Business owners can also apply for disaster assistance to help cover business losses. 

You can apply at DisasterAssistance.gov or by calling 1 (800) 621-3362.

Is FEMA Assistance the Same as Flood Insurance?

No. FEMA disaster assistance is separate from flood insurance coverage. To qualify for disaster assistance, your property must have been damaged due to a declared disaster. Further, there are limits to FEMA assistance. The maximum payout is around $30,000, while the average payout is between $7,000 and $8,000. 

Frequently Asked Questions

Do renters need flood insurance?

If you live in a high- or moderate-risk area, you should purchase flood coverage. Flood coverage for renters is relatively cheap, as you’re only insuring your personal belongings. Standard renters insurance does not cover you for a flood. 

Is flood insurance paid upfront?

If you are buying flood insurance as part of your home purchase, you will pay for the first year’s premiums at your closing. If you are not buying your policy at closing, you’ll likely have the choice to pay all at once (usually for a discount) or in monthly installments. Your lender may require you to pay flood premiums as part of your mortgage payment. 

Does flood zone affect property value?

In short, yes. A 2008 study done by Wiley-Blackwell showed that properties within a floodplain were valued 7.3 percent less than similar homes outside the floodplain. This was true of properties at risk of coastal, wetland, waterway, and riverine flooding.

Is it bad to buy a house in a flood zone?

Not necessarily, but you should be aware of the risks before deciding. High-risk areas—areas with a 1 percent chance of a flood—have a 25 percent chance of flooding over 30 years. While there are many things you can do to mitigate the risk of flood damage, you may have trouble reselling the property. Not to mention, a large flood could cause major damage to your home and make it impossible to rebuild. 

How to Save on Flood Insurance

Flood insurance can be pricey, especially if you live in coastal Louisiana or Florida. But you can still find ways to save. Here are six strategies to save money on your flood insurance policy:

  1. Participate in discount programs, like bundling your insurance. 
  2. Raise your deductible but only to an affordable rate.
  3. Install flood-resistant items like sump pumps, sewer backflow valves and plugs, and flood vents.
  4. Raise appliances and electrical equipment (e.g., service panels) to one foot above potential flood elevation.
  5. Remove personal belongings from basements and crawl spaces or store on shelving at least one foot above potential flood elevation.
  6. Compare flood insurance policies from different providers in your area. 

Though most flood policies are backed by the NFIP, different flood insurers can charge different flood insurance rates based on their risk assessment and business costs. That’s why it’s so important to compare rates before you buy and at least every six months afterward. 

Insurify makes comparing home insurance policies with flood coverage easy. Fill out our confidential form, and compare rates from top providers in your area for free. If you still have questions, you can speak with one of our talented insurance agents. Try it today!

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Updated August 30, 2021

J.J. Starr is a health and finance copywriter who enjoys helping readers find the information they need. In addition to her background in banking and financial advising, she is also a poet with an MFA from New York University. She lives in Amherst, Massachusetts. You can learn more at jjstarrwrites.com.