Getting Affordable Flood Insurance

You don’t have to live in a high-risk flood zone to be hit with expensive flood damage; about 25% of the National Flood Insurance Program’s claims come from areas with low-to-moderate flood risk. “It’s not just people in floodplains who get flooded when a storm decides to stall over an area and dump catastrophic amounts of rainfall,” says Mark Hanna, of the Insurance Council of Texas.

That’s what happened last summer when Hurricane Harvey unleashed up to 50 inches of rain over Houston. Only about 20% of flooded homes were covered by flood insurance.

Damage from flooding or water that rises from the bottom up—from the overflow of a body of water, for example, or a storm surge—isn’t covered by homeowners insurance. For that, you need a separate flood insurance policy. Even if your mortgage company doesn’t require you to get flood insurance, it can be worthwhile to protect against the risk.

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Most people still get flood coverage from the Federal Emergency Management Agency’s National Flood Insurance Program, which provides up to $250,000 in dwelling coverage and up to $100,000 in contents coverage. Coverage in low-risk areas can cost as little as $456 per year; higher-risk areas can cost thousands of dollars. (See floodsmart.gov for details.) There’s a 30-day waiting period for NFIP coverage to take effect.

Your flood premiums may rise when local flood maps are updated and change the property’s risk. But you may be able to “grandfather” the old flood zone and keep premiums low if you keep continuous coverage. When buying a house in a flood zone, find out if you can keep the previous owner’s grandfathered rates, says Chris Heidrick, an independent insurance agent in Sanibel, Fla.

Check with private insurers. The growing private flood insurance marketplace provides new competition that offers some people more coverage at a lower cost. According to a study by S&P Global Market Intelligence, private flood insurers now account for 17% of all flood insurance premiums nationwide, with the biggest markets in Florida, California, Texas and New York. (Some homeowners in very high risk areas may be able to get coverage only from the NFIP.)

Check with your state insurance department for companies selling flood coverage in your area, and ask your insurance agent about NFIP as well as private coverage. Some big-name companies provide private flood coverage—Chubb, for example, provides the coverage in 37 states, with more on the way. The average Chubb policy costs $440 per year. A growing number of small insurers also specialize in flood coverage.

Private flood policies tend to have higher coverage limits (often matching your home insurance limits), and unlike the NFIP coverage, they usually cover the cost to replace your possessions (rather than the depreciated “actual cash value”). They will also cover possessions in basements and usually don’t have a 30-day waiting period.

A study by the actuarial firm Milliman found that 77% of all single-family homes in Florida, 69% in Louisiana and 92% in Texas could see cheaper premiums with private insurance than with the NFIP. But you don’t always save money with private in­surance. Heidrick says he generally sees better rates from the NFIP on lower-risk homes, but better rates from private insurers in some higher-risk areas.

NFIP charges a surcharge for flood insurance on second homes. You generally pay less for private flood coverage on second homes.

Help with the costs. You may get a discount on flood insurance in high-risk areas for certain home improvements, with the biggest breaks available for making major changes, such as elevating your home, filling in your basement or no longer using it for living space, and adding flood vents, says Rachel Sears, director of FEMA’s floodplain management division. Some people can get a discount by elevating the utilities in the basement, such as the furnace, or moving them to a higher floor. You may also qualify for a break on your homeowners insurance if you install a backup, battery-powered sump pump (or hook it up to an automatic home generator). See FEMA's guide to reducing flood risk in residential buildings.

The NFIP offers pre- and post-disaster grant programs that could help pay for flood-mitigation retrofitting. The programs are generally administered by state emergency management agencies. (FEMA has an extensive guide online on Hazard Mitigation Assistance.)