How to Know if You Need Flood Insurance

T.L. Bodine
High water flood in neighborhood

If you're in an area prone to flooding, your mortgage company may require you to carry flood insurance. Even if it's not a requirement in your area, the extra protection afforded by a flood policy can make purchasing one worthwhile. However, flood insurance is not necessary in all areas, and it may be more economical for some people to skip it entirely. If you're a new homeowner, it pays to research your options before deciding whether flood insurance is really necessary.

What Is Flood Insurance?

Flood insurance is a supplemental policy or insurance rider that can cover damage caused by floods. The most common provider of flood insurance is the National Flood Insurance Program (NFIP), operated by FEMA. This government-assisted insurance program helps provide affordable insurance to people in areas of flood activity.

Some insurance companies offer their own flood policies as well, sold individually or in conjunction with standard homeowners plans.

Assessing Your Flood Risk

Because floods are very common in some areas and the damage they cause is often severe, many homeowners insurance companies exclude flood damage from their policies. For insurance purposes, a flood is described as rising water that enters a home from outside at the ground level. This means that water damage from a bust pipe is not covered by flood insurance, but damage caused by an overflowing riverbank, flash flood, or run-off from melting snow would all fall under the definition of "flood."

Naturally, some areas are more prone to floods than others. If you live near a coast or in a low-lying area, you are at a higher risk of flooding than someone who lives on a mountain peak or middle of the desert.

Risk Factors

Flood risk assessment takes several factors into account:

  • Annual rainfall: Areas with low precipitation are less likely to experience flooding, although flash floods can still be a problem.
  • Elevation: Since water tends to gather in areas with low elevation, people living at higher altitudes will generally have a lower flood risk.
  • Weather patterns: Areas in the path of hurricanes will flood more frequently than other parts of the country. Areas with heavy seasonal rains are more prone to flash flooding than areas with smaller but more frequent rains.
  • Historical levels of flood claims in the past: Areas with a high flood risk in past years will frequently continue to be high risk.

The NFIP publishes a flood risk map that shows the areas of high, medium and low flood risk. This map changes frequently as information differs; due to changes in climate and other factors, some areas that were not previously prone to flooding have become higher risk. Currently, the highest risk areas are New England, the Deep South, and the states surrounding the Great Lakes. Most areas west of the Rocky Mountains have a fairly low flood risk.

Geographic Considerations

Bear in mind that flood risk differs between counties, so one part of a state may have a much higher flood risk than another area. Additionally, individual communities can choose whether to participate in the NFIP. While most communities will choose to participate in the NFIP, it's possible that your county does not. You can check this on the NFIP website. If your community does not support NFIP insurance, you may need to obtain coverage from an independent company, like the Private Market Flood Insurance underwritten by Lloyd's.

When Flood Insurance Is Required

If you own your home outright, you are not legally required to carry flood insurance, but you can obtain a policy if you desire. If you pay a mortgage, however, the mortgage company dictates what type of insurance is required. In general, federally insured and regulated lenders will require that you carry flood insurance if you are in a high-risk flood area, meaning any area with a 25% or better chance of flooding during the duration of the mortgage. Although not federally mandated, some mortgage companies will also require flood insurance if you live somewhere with a moderate to low flood risk.

The best way to determine whether flood insurance is required is to check with your mortgage company. You can usually call the company's customer service line or check the terms of your mortgage. Flood insurance and any other specific insurance requirements will be detailed in the mortgage agreement.

Do You Need Flood Insurance?

If your mortgage company does not specifically require flood insurance, or if you do not pay a mortgage for your home, it's your choice whether to obtain a flood policy. Check with your homeowners insurance company to confirm that flood damage is not covered under your standard policy. Some homeowners plans will allow you to add flood coverage without using a third-party insurer; others might be able to recommend you to a private insurer if NFIP is unavailable or unaffordable.

Flood coverage will tend to be more affordable in places where flooding is rare, so you may find the cost worthwhile to relieve your worry.

Assess Your Risk

If you live somewhere with a low risk of flooding, it's up to you to decide whether flood insurance is a reasonable investment. No matter where you live, nowhere is completely safe from flooding. The NFIP reports that around 25% of its claims and a third of disaster funding are spent on low-risk areas, and the average flood claim can cost around $30,000. Opting out of flood insurance is a calculated risk you can take if you feel that risk is worth the monetary savings of skipping the coverage.

How to Know if You Need Flood Insurance