Understanding Flood Insurance – What Every Homeowner Needs to Know

Owning a home is a huge responsibility. Whether you live in an area prone to flooding or not, flood damage can be devastating for homeowners.

The National Flood Insurance Program (NFIP) provides building and content coverage. It is required for homeowners with federally backed mortgages in high-risk areas. It is also recommended for all other homeowners.

What is Flood Insurance?

Most homeowners’ insurance policies don’t cover flood damage, so securing separate coverage for your home and belongings is important. Flooding from heavy rainfall, overflowing rivers and bodies of water and hurricane storm surges can cause catastrophic destruction. Those who live in areas designated as special flood hazards are particularly at risk.

A standard flood policy through NFIP offers coverage for your building structure and its contents, up to a maximum of $250,000 for the design and $100,000 for the contents. It’s typically required for homes in high-risk zones that receive federally backed mortgages or those who’ve received federal disaster assistance for past flooding.

Homeowners in moderate- to low-risk zones can also get coverage through a preferred risk policy at a lower cost. In most cases, homeowners must secure flood insurance in New Jersey before closing on their mortgage and pay the annual premium as part of their monthly payments (similar to how they might pay property taxes or homeowners’ insurance). Renters can also buy a flood policy for their personal belongings. However, the deductible for a rental property is usually higher than that of a homeowner’s policy.

How Much Coverage Do I Need?

Many homeowners assume they don’t need flood insurance because they aren’t in a low-lying or shoreline area. However, flooding can happen anywhere and to any home. The rapid thawing of snow in spring, storms, hurricanes, and even wildfires can all lead to flooding. And while the typical homeowner’s policy doesn’t cover flood damage, many mortgage lenders require this coverage. Moreover, you will likely be required to carry this policy if you receive federal disaster assistance for your home through a no-interest or low-interest loan.

The NFIP offers building property and personal content coverage, with limits of $250,000 in building coverage and $100,000 in content coverage. It typically takes 30 days for the policy to take effect, but this waiting period can be waived if you need the policy to close on a house or if the NFIP determines your home is in a new flood zone.

If you need clarification about how much flood coverage you need, ask an independent insurance agent for help. A good agent can walk you through your options and recommend the right protection for your home and budget.

What is the Waiting Period for Flood Insurance?

Unlike standard home insurance, NFIP flood policies have very short and firm deadlines for filing proof of loss paperwork. They also have fewer benefit categories than typical homeowners’ policies. For example, NFIP policies do not include coverage for the cost of temporary living arrangements.

It’s often difficult to receive immediate flood insurance, especially if purchasing an NFIP policy for the first time. Exceptions can be made in some cases if you’re changing an existing policy around the time it’s due for renewal or if your mortgage company requires the change and your property meets special risk designations assigned by an adjuster.

Generally, a standard NFIP policy reimburses homeowners for the replacement cost of their damaged building and up to $100,000 in coverage for their personal belongings. Other facilities and private property outside the primary residence are reimbursed at actual cash value (ACV), equal to the amount the insurer would pay for your property minus physical depreciation. Understanding both methodologies is important to choose the best one for your situation.

What is the Claims Process for Flood Insurance?

You can purchase flood insurance even if your home has been flooded before, as long as your community participates in the National Flood Insurance Program. The premium does not increase because of the claims history.

When you file a claim, an adjuster will visit your property and evaluate the damage. Keeping receipts of your items will help speed up the process. Be sure to include item descriptions, the cost of the item and the date of purchase. Keeping photos of your items organized by room is also a good idea.

FEMA recommends you talk with your insurer to resolve any dispute before filing an appeal. If you cannot reach an agreement, you can file a lawsuit within 60 days of your insurer’s denial.

Most flooding occurs from heavy rains, snow melt and hurricanes, but it can also happen from dam failures and blocked storm drains. Floods can cause serious damage to homes and even destroy lives. For this reason, most mortgage lenders require borrowers in high-risk areas to purchase flood insurance.

What is the Cost of Flood Insurance?

The cost of a flood policy depends on several factors. Among them are the type and amount of coverage and the policy’s deductible, which you must pay out of pocket before your insurer begins to cover your losses. Additionally, the location of your property will factor into the cost of a flood insurance policy. Insurers will look at things like the elevation of your building, nearby bodies of water, whether you are in a flood zone and how much rainfall is typically experienced in your area.

In addition to these factors, you’ll also want to consider the value of your personal belongings and home. The cost of a flood policy will increase with the higher the amount of coverage you select, as well as the policy.