Is Flood Insurance Required?
Flood insurance may be required for borrowers —people who currently have a mortgage (or other lending product) backed by their dwelling. People without mortgages can choose whether they want to carry flood insurance.
Flood Insurance for Borrowers
If you live in a high-risk flood zone, you are federally required to carry flood insurance. A high-risk area is deemed to have at least a one percent chance of flooding annually. This is also called a 100-year flood zone. These zones are marked with the letters A or V in the title.
If you live in lower-risk areas —Zone B, Zone C, or Zone X—you won’t be federally required to carry flood insurance. However, your lender may still require you to carry it as a condition of your loan.
If your home is not mortgaged, you are not required to carry flood insurance or any home insurance. However, if you live in an area with a risk of flooding, it’s always a great idea to carry flood insurance.
That’s because even minor flooding can cost tens of thousands of dollars to repair. Floods are extremely destructive, as they can rot wood, create mold, damage floors and electrical work, and more. The average homeowner can easily run out of savings trying to repair flood damage.
Finally, flooding in much of the U.S. is becoming more common, according to the U.N. Environment Programme. In 2020, the EPA found that flooding in coastal areas was more common at every site the EPA was monitoring. And that flooding has intensified over recent years.
Flood Insurance and Escrow
If you have a mortgage and a flood insurance policy, you can likely pay that amount through your mortgage servicer using an escrow account. This can be very useful, as your lender will ensure you are in compliance with flood insurance requirements.
How Much Flood Insurance Is Required?
The amount of coverage you need depends on:
The cost to rebuild your home
The cost to replace your home contents (personal belongings)
The outstanding balance on your home loan
No minimum amount of insurance exists through the NFIP. Your lender will likely require you to carry enough insurance to cover structures—your dwelling, garage, and any applicable outbuilding(s).
The maximum amount of flood insurance you can purchase with an NFIP policy is $250,000 for building coverage and $100,000 for home contents coverage. For many homeowners, these limits will fall short in the event of a total catastrophe.
If that’s the case for you, you may be required to purchase additional flood insurance from the private market. Even if your lender doesn’t require it, you should still purchase additional insurance if NFIP insurance leaves coverage gaps. Remember: your home is also a real estate investment. Be sure to protect your investment.
Can My Lender Require More Flood Insurance Than the Minimum?
Yes, your lender can stipulate that you carry more coverage than the minimum. Don’t be too discouraged by this. Your lender is protecting the asset that acts as collateral for your loan. If your lender thinks that the minimum isn’t enough to cover your home, trust that judgment.
Common reasons minimum flood insurance won’t provide enough coverage include:
Luxury home building materials and fixtures
Rebuilding costs for your home are higher than the minimum
You own high-value personal property