Floods can wreak havoc on your home and belongings. Unlike homeowner’s insurance, which covers most damage caused by falling trees and wind, flood damage is typically covered by a separate policy.
A few inches of water can cost thousands of dollars. Some tools that help homeowners estimate the damage—the deductible you choose and your property’s flood risk zone can impact your annual premium.
Replacement Cost Value
Flood insurance provides reimbursement for the cost of replacing lost property. The National Flood Insurance Program (NFIP) includes building and content coverage options. Building coverage is typically based on the home’s replacement cost value, which has less depreciation, while content coverage is generally based on actual cash value, which also has less depreciation. A policy’s deductible can also affect the cost of flood insurance. NFIP policies offer a range of deductibles, with lower premiums often associated with higher deductibles.
As homeowners assess the various aspects of safeguarding their properties from flood risks, a common question is, how much does flood insurance cost? This inquiry becomes pivotal in making informed decisions about acquiring adequate coverage and preparing for potential flooding events.
Regardless of the deductible amount, it is essential to remember that even one inch of floodwater can cause thousands of dollars worth of damage. This can quickly add up, especially if the damaged items are old and prone to mold and decay. Getting back to normal after a flood can take weeks or even months, so it is essential to purchase replacement cost coverage, which covers the total cost of replacing destroyed items. Some analysis found that replacement coverage costs vary widely by state and region.
The type of NFIP policy you choose and your property’s flood risk zone play a role in the cost of your flood insurance. Homes closer to lakes, rivers, and oceans are more likely to be located in high-risk flood zones, for example, and may require more costly NFIP coverage. Similarly, older homes are constructed with more absorbent materials than modern ones, so their insurance costs may be higher.
Your home’s location and risk for flooding play a significant role in your flood insurance premium. Insurers consider the area’s history of floods, the height of the surrounding land, and other factors when determining its flood risk. A home’s construction materials and age also play a role. For example, older materials may be drier and more absorbent than newer materials. Modern construction techniques can also help mitigate flood damage and are less likely to require replacement — like including floor openings so that water drains more quickly.
If you have a flood insurance policy, your insurance company will compensate you for the cost to repair any items damaged by a covered loss. This includes the cost of repairing walls, floors, and ceilings; replacing appliances, blinds, or carpeting; and restoring major functional systems, such as electrical and plumbing. Items are reimbursed on an actual cash value (ACV) basis, which considers physical depreciation.
This is a different approach than how most homeowners’ and renters’ insurance policies work, which typically compensates for damaged items on an agreed-upon replacement cost basis. However, this is the only way the National Flood Insurance Program (NFIP) offers coverage for items in homes outside high-risk areas.
Additional Living Expenses
If you live in a flood zone, your mortgage company likely requires you to buy flood insurance. That’s because the damage from flooding can devastate homes and make them uninhabitable. Moreover, it’s one of the most common natural disasters in the United States. To determine whether you live in a flood zone, look up your address at the Flood Map Service Center.
But if you’re buying flood insurance for the first time, it might be worth reviewing your policy to ensure it includes additional living expenses (ALE) coverage. These costs help you pay to live somewhere else if your home is uninhabitable by a covered event such as a fire or tornado. ALE isn’t included in most homeowner’s insurance policies. Instead, homeowners typically rely on disaster aid programs from the Small Business Administration after a flood.
NFIP flood policies don’t include ALE coverage because they only cover direct physical losses from the water, like damaged drywall and carpeting. Then, there are the indirect expenses related to relocating, such as hotels and restaurant meals.
Fortunately, private flood insurance providers offer policies that cover ALE. If you’re considering purchasing a personal flood policy, check the limits and options before buying to ensure your coverage meets your needs.
Flooding is a risk different from other disasters but can still devastate homeowners and their families. Many homeowners worry about losing their belongings and the financial security of their homes, which is why it’s essential to have the right coverage to protect against this kind of event.
Homeowners can learn more about their potential costs by understanding how flood insurance costs are calculated. The price is based on the risk of flooding, so the higher the risk, the higher the premium. However, not just the flood risk affects the cost, as other factors can also impact the premium.
For example, older homes are generally more expensive to insure than newer ones since they may be made with materials prone to mold and water damage. Additionally, elevating the house or moving utilities to a higher location can reduce the cost of insurance, as can filling in the basement.
In addition to these issues, the type and size of a home can also impact the cost. Larger homes usually have higher premiums because the insurer must pay for more potential losses. Choosing the right coverage and deductible level can help homeowners find the ideal balance between cost and peace of mind.