Did you know floods are the most common and costly natural disaster in the U.S.? Many homeowners and renters insurance policies don't cover flood damage, yet only about 4% of Americans have flood insurance. Join Laura as she explains what flood insurance is, who needs it, and how to protect your property from devastating flood-related losses.
Did you know floods are the most common and costly natural disaster in the U.S.? Many homeowners and renters insurance policies don't cover flood damage, yet only about 4% of Americans have flood insurance. Join Laura as she explains what flood insurance is, who needs it, and how to protect your property from devastating flood-related losses.
Find a transcript here.
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Areas of the U.S. have recently experienced torrential rain that caused devastating and deadly flooding. The nation watched in horror as over 100 people were swept to their deaths in Kerr County, Texas, including many children attending Camp Mystic on the Guadalupe River.
While Kerr County is an extreme example of what can happen when an area is prone to flooding, nearly 8 million homes and other structures exist in Special Flood Hazard Areas, as designated by the Federal Emergency Management Agency (FEMA).
While nothing can prevent loss of life in a natural disaster, such as a massive flood, there are insurance options available to protect the property you own or rent. However, if you assume your regular homeowners or renters insurance policy will cover flood-related damage to your home or personal belongings, you’ll be disappointed.
Floods are the most common and costly natural disaster in the U.S. Unfortunately, a lack of flood insurance is the most significant insurance gap or vulnerability that Americans have. This post will review what flood insurance is, who needs it, and how to purchase a policy.
Welcome back to episode 949 of Money Girl–I appreciate you spending time with me! I'm Laura Adams, an award-winning author, on-camera spokesperson, female money speaker, and founder of The Money Stack, a Substack newsletter. Subscribers automatically receive my Money Success Toolkit, which includes the exact templates I use to manage my finances.
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What is flood insurance?
It’s a common misconception that homeowners or renters insurance protects your home and personal belongings from flood damage. Those policies protect you against water damage from the sky, like a leaky roof, but not from damage that results from swelling groundwater. Nor would they cover damage from a sewer that backs up into your home due to a rainstorm.
Therefore, determining the cause of a flood, or where the water originated, is crucial in determining whether home or renter's insurance covers it.
You must have a separate flood insurance policy for damage caused by groundwater, like the ocean, a lake, a river, or rain runoff. However, flood insurance wouldn’t cover damage from a sewer that backs up into your home due to clogged pipes or from problems caused by tree roots in your yard.
Flood insurance typically doesn’t cover specific property and belongings, including currency, valuable papers, precious metals, cars or other motorized vehicles, belongings in a basement, and landscaping.
Nor does flood insurance reimburse financial losses if you have a covered business that gets flooded. However, having a business interruption policy could protect you if you’re unable to earn revenue due to a natural disaster.
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Who should purchase flood insurance?
If you buy a home in a high-risk flood zone, as defined by FEMA, with a government-backed mortgage, like an FHA or VA loan, you’re required to get flood insurance. Some conventional mortgage lenders may also require you to buy a flood policy. However, if your lender doesn’t require it or you don’t have a mortgage, flood insurance is optional, even if you live in a high-risk area.
What’s challenging about flood insurance is that many people believe that if they don’t live right on the ocean or a lake or river, they’re not in any danger of a flood. The problem is that floods often occur in areas designated as low- to moderate-risk on a flood map. According to FEMA, 32% of flood claims come from outside high-risk flood zones.
While FEMA works to reflect every home’s flood risk accurately, it’s a constantly evolving situation. In addition to rainfall, construction and other disasters, like wildfires and droughts, can alter an area’s flood risks.
Any area that receives heavy rainfall, snowfall, or has broken water mains can experience isolated and unpredictable flooding. So, if you take anything from this post, it’s that floods can happen anywhere!
According to the Insurance Information Institute, only about 4% of Americans have flood insurance. In 2024, Hurricane Helene damaged an estimated 300 homes in Buncombe County, North Carolina, where fewer than 1% of the homes and businesses had flood insurance.
According to FEMA, one inch of water in a home can cause up to $25,000 in damage. That seems like a conservative estimate to me, as replacing floor covering alone could cost that much. Consider the damage to appliances, furniture, drywall, and other items after being bathed in fresh or salt water for days or weeks. Additionally, there’s a cleanup tab for removing debris and any mold caused by moisture in a home.
Many people mistakenly assume that they’ll get disaster assistance after a flood. Federal help is only available when the President declares a disaster area, and most floods don’t get assistance. Plus, when federal help comes, it’s in the form of a loan that you must repay with interest. It’s only meant to kick-start recovery in an area, not to pay for it.
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How do you purchase flood insurance?
In general, flood insurance must be purchased through a separate policy, typically offered by the National Flood Insurance Program (NFIP), which FEMA manages. However, you can only get an NFIP policy if you live in an area that participates in the program. It requires communities to follow guidelines that reduce residents' flood risk — but most do participate.
If you live in an area that doesn’t participate in the NFIP or you need more coverage, some private insurers offer flood insurance. Note that there’s typically a 30-day waiting period for flood insurance to take effect after buying it. So, you must buy it before a rainstorm is bearing down on you.
NFIP policies offer up to $250,000 of building coverage and $100,000 for contents. However, some private flood policies offer higher limits and broader coverage.
Building coverage protects your home’s structure and utilities, like electrical and plumbing, appliances, flooring, cabinets, walls, and detached garages. Contents coverage protects items like your clothing, furnishings, electronics, curtains, and artwork. You can purchase them separately or together, and each has its own deductible.
You can visit FloodSmart.gov to learn more about your risk and get a rate quote. You can also buy coverage through an insurance broker.
The cost of flood insurance varies, particularly if you get private insurance with higher coverage limits. In general, it’s affected by your home’s age, construction, distance to water, elevation, and the policy deductible you choose.
FloodSmart.gov offers an easy-to-use quote tool. When I entered information for my home at the highest coverage amounts, it provided me with four deductible options, ranging from approximately $1,400 to $1,600 per year. As always, I recommend getting multiple quotes from the NFIP and private insurers to compare benefits and costs.
That's all for now. I'll talk to you soon. Until then, here's to living a richer life!
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