Flood Insurance

Homeowners and renters insurance does not typically cover flood damage.1 More than 20 percent of flood claims come from properties outside high-risk flood zones.2

You should also know that flood damage is specifically excluded from all basic homeowner's policies. Fortunately, you can purchase a separate Federal Flood Insurance policy through one of many private insurance companies that write and service the policies for the government.

Flooding is the temporary inundation of normally dry land caused by the overflow of inland or tidal waters, the unusual or rapid accumulation or runoff of surface waters, or mudslides caused by flooding. Floods can result from storms, hurricanes, melting snow, dam or levee failure, or even inadequate drainage. According to the National Flood Insurance Program (NFIP), a wet situation is considered a flood if two adjacent properties are under water. In rural areas, at least two acres must be submerged.

Communities Get with the Program
Disaster assistance comes in two forms: a U.S. Small Business Administration loan, which must be paid back with interest, or a FEMA disaster grant, which is about $5,000 on average per household.  By comparison, the average flood insurance claim is nearly $30,000 and does not have to be repaid.3 In return, those communities qualify for insurance protection through the NFIP. The program makes a Flood Insurance Rate Map (FIRM) that shows base flood elevations, risk zones and flood plain boundaries. The FIRM sets the insurance rates for buildings in the community. Flood zone information is available from local government, real estate professionals and insurance agents.

Your premium will depend on the level of risk associated with the location of your home. New flood maps utilize the following categories of Special Flood Hazard Areas or SFHAs:

  • "V" zones are the most hazardous and most expensive areas to insure. They generally include the first row of beachfront properties, which are subject to wave action.
  • "A" zones are usually near a lake, river, stream or other body of water, and are at risk of peril from rising waters
  • "X" zones are less risky areas where flood insurance is not mandatory, and is less expensive. (These zones may be labeled "B" or "C" on older maps)
  • "D" zones have not been studied, but flooding is possible and insurance is available.

Homeowners in a low- to moderate-risk zone may be eligible for a discounted preferred risk policy. And flood insurance should cost the same whether you buy it from an insurance agent or directly from the NFIP.

Types of Coverage
Unlike homeowner's insurance, flood protection is not designed to return a home to its pre-disaster state. It is meant to help flood victims avoid financial ruin. Residential buildings may receive up to $250,000 in coverage, while coverage for non-residential buildings is limited to $500,000. A separate contents provision may be added, but coverage is limited to $100,000 residential/ $500,000 non-residential. There are separate deductibles for buildings and contents.

A "dwelling" policy covers single family and multi-family homes. Apartments and businesses require a "general property" policy. Condominium owners can purchase a "residential condominium building association policy."

Expect a standard 30-day waiting period for new policies, which means they must be purchased well before any flood warnings sound.

No matter where you live or work, some risk of flooding exists.4 Could a flood ruin you? That's the $250,000 question to answer when deciding whether you need flood insurance.

Sources: 1 – 4) National Flood Insurance Program, 2019


The information in this newsletter is not intended as tax, legal, investment, or retirement advice or recommendations, and it may not be relied on for the ­purpose of ­avoiding any ­federal tax penalties. You are encouraged to seek guidance from an independent tax or legal professional. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the ­purchase or sale of any security. This material was written and prepared by Broadridge Advisor Solutions. © 2020 Broadridge Investor Communication Solutions, Inc.