Lenders often require you to carry coverage limits that equal your home’s replacement cost value, but official flood insurance requirements are less demanding.
Michelle Lambright Black is a credit expert, freelance writer, and founder of CreditWriter.com. She has over 20 years of experience writing and speaking about credit and money, and focuses on helping families and small business owners make smart, informed decisions about their credit, money, and financial products (including insurance). Michelle's work has appeared in publications such as Yahoo! Finance, Reader's Digest, Parents, FICO, Forbes, Bankrate, The Seattle Times, MarketWatch, BuySide from Wall Street Journal, USA Today, and more. She's also a three-time finalist for the best personal finance freelancer award from the Plutus Foundation. When she isn't writing or speaking about credit and money, Michelle loves to travel with her family or read a good book. You can connect with Michelle on Instagram or Twitter.
Michelle has been a contributor at Insurify since September 2023.
Sara Getman is an Associate Editor at Insurify and has been with the company since 2022. Prior to joining Insurify, Sara completed her undergraduate degree in English Literature at Simmons University in Boston. At Simmons, she was the Editor-in-Chief for Sidelines Magazine (a literary and art publication), and wrote creative non-fiction.
Outside of work, Sara is an avid reader, and loves rock climbing, yoga, and crocheting.
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If you have a mortgage, your lender likely requires you to have and keep homeowners insurance until you pay off your loan. Similarly, it may also require you to carry flood insurance to protect your home.
Flood insurance coverage isn’t part of a standard homeowners insurance policy. Your lender might require you to purchase a supplemental flood insurance policy if you live in a flood zone — specifically a Special Flood Hazard Area (SFHA) designated by the Federal Emergency Management Agency (FEMA).[1]
Here’s what you should know about flood insurance minimum requirements, what flood insurance covers, and how much flood insurance costs.
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How much flood insurance do you need?
If a lender or bank requires you to take out a flood insurance policy, and you live in a flood zone, you’ll need to carry at least enough flood insurance to satisfy your lender’s minimum requirements. This can vary based on your loan type, loan balance, appraised property value, and other factors.[2]
In many cases, a lender may require you to carry at least enough flood insurance to cover the replacement cost value of your home. For a one- to four-family residential home, official National Flood Insurance Program (NFIP) requirements state your coverage amount should equal at least one of the following:
The outstanding balance of your home loan
The maximum coverage amount available under the NFIP for your structure type
The full insurable value of the property
If you opt for coverage under the NFIP, the maximum available coverage is $250,000 for residential property structures and $100,000 for personal property. You can get up to $500,000 for non-condo residential properties larger than five units and $100,000 for personal property.
Keep in mind that your lender might ask you to carry more insurance than the NFIP provides. It’s common for lenders to ask you to carry building coverage limits equal to your home’s replacement cost value. If this happens, you’ll need to look for a private flood insurance policy to meet your needs.
Good to Know
Both Fannie Mae and Freddie Mac mortgages have the same flood insurance coverage requirements.
Why your lender may require flood insurance
Buying flood insurance is a good idea to protect your home from potential water-related disasters. If you live in a high-risk flood zone, this insurance coverage may not be optional.
Flood insurance isn’t part of a standard homeowners policy, so if your lender requires it, you’ll need an additional policy.
Government-backed mortgages require flood insurance if you live in an area that’s vulnerable to flood risk.[3] Additionally, if the location of your property is a Special Flood Hazard Area designated by FEMA, you’ll need flood insurance. In general, many lenders require flood insurance if you live in a high-risk area.
What flood insurance covers
Here are some examples of what standard flood insurance should cover:[4]
The building, foundation, anchorage systems, and staircases
Electrical and plumbing systems
Furnaces and water heaters
Fuel tanks, solar energy equipment, well-water pumps, and tanks
Cabinets, paneling, and bookcases, if permanently installed
Carpeting, if permanently installed
Window blinds
Detached garages
Appliances, such as stoves, refrigerators, and dishwashers
Personal belongings, such as furniture, electronics, and clothing
Small appliances (microwave, toaster, portable and window air conditioner)
Carpets not included in building coverage, such as carpet placed over wood flooring
Washing machine and dryer
Curtains
Valuables up to $2,500, such as artwork and furs
What flood insurance doesn’t cover
Unfortunately, flood insurance typically doesn’t cover the replacement cost or the actual cash value of certain types of losses. Some examples include:
Sewer backups
Living expenses, such as temporary housing
Avoidable mold, mildew, or moisture damage
Pools and hot tubs
Outdoor property, such as fences, decks, landscaping, patios, wells, and septic tanks
Cars and other vehicles
How much flood insurance costs
When it comes to flood insurance, the rate can vary based on many factors. The NFIP sets flood insurance premiums on the following:[5]
Number of single-family flood insurance policies in an area
Median replacement cost value in each insurance price range
Percentage of policyholders who are at risk and the types of flood perils they’re facing
The median current cost of insurance
Percentage of policies affected by flood perils and the types of floods
Good to Know
According to the most recent NFIP data, 37% of policyholders pay $1,000 or less for flood insurance each year. Meanwhile, the annual cost of flood insurance for 32% of policyholders is between $1,000 and $2,000. In some areas of the country, and depending on other factors like your property, homeowners pay premiums costing more than $13,000 annually.
Different types of flood zones
Every property has some risk of flooding, but some areas on the flood map are at a higher risk than others. To explain the risk of flooding, the Federal Emergency Management Agency (FEMA) breaks flood zones down into five main categories:[6]
V Zones: V Zones — also known as Zones V and VE on FEMA flood maps — represent high-risk flood areas along the coast that may also experience additional hazards from storm waves. FEMA estimates these areas have a 26% chance of flooding over the span of a 30-year mortgage loan.
Zone A: Zone A is another high-risk flood zone. If you live in a community that participates in the NFIP and own real estate (residential or commercial properties) with a federally backed mortgage, you’ll need to purchase flood insurance.
Zone D: In Zone D, the flood risk is unknown. As a result, insurers may base premiums on the uncertainty of the flood risk in these areas.
Zone B and X (Shaded): These are areas of moderate flood risk, typically between the limits of 100- and 500-year floods.
Zone C and X (Unshaded): These are low-risk zones for floods, typically above the 500-year flood level.
How to secure flood insurance
As a homeowner, you have two options when it comes to buying flood insurance. You can shop for appropriate flood insurance coverage through private insurance companies, or you can purchase coverage through the National Flood Insurance Program.
In the case of a required flood insurance policy, talk to your bank or lender about whether you need federal or private flood insurance.
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Private flood insurance vs. NFIP
Congress founded the NFIP in 1968. One of the program’s primary goals was to reduce the financial effect of flooding on communities. The program also aimed to promote the adoption and enforcement of floodplain-management practices throughout the country.
FEMA continues to oversee and operate the program today. You can purchase an NFIP insurance policy either through NFIP Direct or through an insurance company in the NFIP network.
If you purchase a supplemental flood insurance policy through a private company, you may have more choices available. But this has downsides to consider as well.
In general, private insurance companies offer higher coverage limits compared to NFIP policies. For example, the NFIP homeowner building coverage limit is $250,000, while the coverage limit from private insurer Neptune is $4 million.
Lender-required flood insurance FAQs
Deciding on the right flood insurance can be difficult. Check out the additional information below about lender-required flood insurance as you research your policy options.
Can lenders require more flood coverage than the statutory minimum amount?
In general, yes. Lenders may require borrowers to carry more flood insurance than the National Flood Insurance Act requires.
Does a lender always have to escrow flood insurance premiums?
Not necessarily. Many lenders collect your flood insurance premium throughout the year as part of your monthly mortgage payment and hold it in an escrow account. But some lenders may allow you to pay for flood insurance directly without the need for an escrow collection process.
What is the maximum amount of dwelling coverage that you can purchase from the NFIP?
The maximum amount of insurance coverage available from the NFIP for residential structures (one to four units) is $250,000 in dwelling coverage and $100,000 in contents coverage.
How can you calculate the minimum amount of flood insurance required?
If you have a federally backed loan on your home and live in a flood zone, the minimum amount of flood insurance your lender requires must be at least equal to the lesser of your outstanding principal loan balance, the maximum coverage available under the NFIP, or the insurable value of the property.
Other lenders may require you to carry flood insurance, even if you have a different type of mortgage. But many lenders require you to carry building coverage limits that equal the replacement cost of your home. If you’re not sure how much flood insurance you need, it’s best to talk to your lender.
Michelle Lambright Black is a credit expert, freelance writer, and founder of CreditWriter.com. She has over 20 years of experience writing and speaking about credit and money, and focuses on helping families and small business owners make smart, informed decisions about their credit, money, and financial products (including insurance). Michelle's work has appeared in publications such as Yahoo! Finance, Reader's Digest, Parents, FICO, Forbes, Bankrate, The Seattle Times, MarketWatch, BuySide from Wall Street Journal, USA Today, and more. She's also a three-time finalist for the best personal finance freelancer award from the Plutus Foundation. When she isn't writing or speaking about credit and money, Michelle loves to travel with her family or read a good book. You can connect with Michelle on Instagram or Twitter.
Michelle has been a contributor at Insurify since September 2023.
Sara Getman is an Associate Editor at Insurify and has been with the company since 2022. Prior to joining Insurify, Sara completed her undergraduate degree in English Literature at Simmons University in Boston. At Simmons, she was the Editor-in-Chief for Sidelines Magazine (a literary and art publication), and wrote creative non-fiction.
Outside of work, Sara is an avid reader, and loves rock climbing, yoga, and crocheting.
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