Flood Insurance May Cost You More

New national rating procedures will raise premiums for more than 3.8 million policyholders.

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More than 3 million homeowners who live in coastal areas will see premiums for federal flood insurance rise this year as the Federal Emergency Management Agency adjusts insurance rates to reflect the risks of climate change.

Damage from water that rises from the bottom up—such as flooding from a heavy rainfall or hurricane—isn’t covered by homeowners insurance. But your policy will likely cover damage if your water heater leaks or a water pipe inside your house bursts.

The National Flood Insurance Program is the primary provider of flood coverage, although some private insurers also provide flood insurance. The NFIP provides about $1.3 trillion in coverage for more than 5 million policyholders in 22,500 communities across the nation. The cost of an NFIP policy varies, depending on risk, but averages about $700 a year. A policy from a private insurer averages $1,050 a year, according to Policygenius, an insurance marketplace.

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NFIP recently released new flood insurance rating procedures that are designed to provide a better measure of the risk of flooding in particular areas. The new methodology, which went into effect in October, will lower premiums for about one-fourth of existing policyholders, while more than 3.8 million will see rates increase.

For most of those homeowners, the increase will be $10 or less per month, according to an analysis by ValuePenguin, a consumer website. About 4% of flood insurance policyholders will pay more than $20 extra a month. Because of the geographic factors that influence the cost of flood insurance, some states are more likely to see higher increases. More than 10,000 policies in each of Florida, Texas, Louisiana, New Jersey and New York will face the highest price increases, according to ValuePenguin.

How to buy coverage. To purchase flood insurance, call your insurance company or insurance agent. You can also find a provider at www.floodsmart.gov/flood-insurance-provider or by calling the NFIP at 877-336-2627.

The program provides up to $250,000 of dwelling coverage and up to $100,000 of contents coverage. The policy has two separate deductibles (one for dwelling, one for contents) that you must pay before coverage kicks in. Deductibles start at $1,000 but can go as high as $10,000 for single-family homes.

Homeowners who want more coverage may be able to buy private insurance, which typically has higher coverage limits. Premiums for a private policy will vary depending on where you live; in some cases, they may be lower than premiums for an NFIP policy.

Kimberly Lankford
Contributing Editor, Kiplinger's Personal Finance

As the "Ask Kim" columnist for Kiplinger's Personal Finance, Lankford receives hundreds of personal finance questions from readers every month. She is the author of Rescue Your Financial Life (McGraw-Hill, 2003), The Insurance Maze: How You Can Save Money on Insurance -- and Still Get the Coverage You Need (Kaplan, 2006), Kiplinger's Ask Kim for Money Smart Solutions (Kaplan, 2007) and The Kiplinger/BBB Personal Finance Guide for Military Families. She is frequently featured as a financial expert on television and radio, including NBC's Today Show, CNN, CNBC and National Public Radio.