Two Minute Money: Do you need flood insurance?

Turner Cowles
Turner Cowles

Flood insurance isn’t just for people who live in floodplains and on a coast. In fact, 98% of counties in the U.S. have been impacted by flooding. And just one inch of water can cause $20,000 worth of damage to your home.

The bad news, and it’s important to emphasize this point, is that your homeowners insurance doesn’t cover flood damage. If your roof is blown off by hurricane-force winds and water pours in and damages your belongings, homeowners insurance might cover it, but the damage caused by flooding won’t be covered. Despite this, only 12% of Americans have flood insurance.

The most common flood insurance is offered through the federal government via the National Flood Insurance Program (NFIP). It’s run by FEMA, and it has two parts.

One will insure your home for up to $250,000, including its foundation and major appliances necessary to live in your home, like water heaters and refrigerators.

The second part of NFIP covers personal property up to $100,000. That includes things unrelated to the foundational structure of your home, like your clothes or the food in your freezer.

Unfortunately, the NFIP doesn’t cover damage to things like trees, fences, hot tubs or jewelry. You won’t be able to insure your basement either, except for items that aren’t necessary to make your home safe, clean and functional.

You can choose one or both policies of the NFIP, insuring yourself for up to $350,000. If your home is worth more or you want to insure more than $350,000, you can also take out a supplemental policy through a private insurer.

The average person pays $1,050 a year for homeowners insurance. Flood coverage adds an average of $700, bringing your total home insurance cost to about $1,750. It’s a tall order, so be sure to weigh the risk.

Keep in mind that there’s a good chance the cost of flood coverage will increase this year. Like many industries, insurance works in cycles. In times of relative calm, insurance premiums are lower due to fewer people filing claims. But after major catastrophes, like hurricanes, insurance prices tend to rise as a result of higher number of claims filed.

Flooding is the most common natural disaster, and in some places you have to buy flood insurance to even get a mortgage. Research flooding in your area, and make sure you’re prepared so you’re not left treading water.