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Flood Insurance – Why you Need It

If it can rain, it can flood. And your home insurance policy doesn’t cover flood damage. To make sure your property is covered, you’ll need a separate flood policy.

The Risk

If your home is in a designated flood zone, your lender requires you to have flood insurance. A flood zone is an area that has a 1% chance of being flooded in any given year. But floods can happen anywhere. On average, 40% of the National Flood Insurance Program (NFIP) flood insurance claims occur outside the high-risk flood areas. Texas is particularly prone to floods, especially in two large parts of the state: the coast and a wide band called Flash Flood Alley that extends through Central and North Texas. Almost every major city in Texas is in an area at high risk of flooding.

What Is Covered

A flood insurance policy will cover your home up to $250,000. You’ll need a separate flood policy for your personal belongings, which provides coverage up to $100,000. Most flood policies have a 30-day waiting period before kicking in so don’t wait for an approaching storm before deciding to buy coverage.

Benefits of flood insurance 

Flood insurance is available to homeowners, business owners, and renters throughout the nation, regardless of whether they are in a high-risk flood zone. Flood insurance is one of the best ways to protect against financial losses caused by flood events as it enables people to recover more quickly and completely. Flood insurance provides funding to repair flood-damaged property without the need to draw down savings, take on debt, or rely on often insufficient and delayed assistance from the federal government. Everyone should consider buying an insurance policy even if it is not required, as most homeowners’ and renters’ insurance policies do not cover flood damages. 

Flood insurance is available primarily from the federally-run National Flood Insurance Program (NFIP), though some private insurers also offer coverage. Under the NFIP, residential property owners can purchase coverage of up to $250,000 in building damages and up to $100,000 in damage to personal property or “contents.” Non-residential property owners, such as businesses or municipalities can purchase coverage of up to $500,000  in building damage and another $500,000 for damage to contents. For coverage beyond these limits, property owners can purchase excess flood insurance policies from private carriers. 

Cost and coverage

The cost of flood insurance for given property varies by flood zone, the amount of coverage purchased, and various characteristics of the building. Some characteristics may include the elevation of the building, how many floors it has, and whether or not it has a basement. NFIP policies for single-family homes average $1,098 per year inside the FEMA-mapped 1% annual chance floodplain, also known as the Special Flood Hazard Area, or SFHA, and $492 outside the SFHA. The median policy for a single-family home inside the SFHA costs $738. Outside the SFHA, the median cost is $439.

When required

Flood insurance is mandatory for certain homes in the SFHA. This includes those with a mortgage from a federally-backed or federally-regulated lender in addition to those with a mortgage backed by a federal agency like the Federal Housing Administration, Department of Agriculture, or the Department of Veterans Affairs. Finally, those who receive federal assistance for property acquisition, construction, or repairs may find this insurance mandatory.

For mortgage borrowers that are required to carry this insurance, homeowners must purchase coverage before the loan closes and must maintain coverage until the mortgage is fully repaid. The required amount of coverage is the lesser of the remaining principal balance of the loan, the maximum coverage available from the NFIP ($250,000 for single-family homes), or the insurable value of the building. Homeowners who do not comply with the mandatory purchase requirement may be ineligible for federal disaster assistance in the future. 

When recommended

Although this insurance is not legally required for all properties, it is generally a good idea to have it. FEMA maps, which flood insurance requirements are based upon, are often outdated and don’t account for all types of floods. Even if a home is not in the SFHA, it may still have a high risk of flooding. In fact, properties outside of FEMA-mapped high-risk areas account for 20% of all NFIP claims and receive 33% of federal disaster assistance for flooding. Further, flood insurance for homes outside the SFHA can be quite affordable since FEMA offers low-cost policies for these properties if they have not previously flooded. 


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