Flood insurance is usually only required if you have a mortgage and live in a high-risk area, although it might be worth considering even if neither condition applies. Federal law states you will be covered for an amount equal to your property's rebuilding cost or to the maximum limit of coverage available to you. This flood insurance requirement applies to both federal and private policies. While you are only required to adhere to minimum coverage, you may want to consider getting more to protect your home and possessions.
Flood Insurance Requirements
The National Flood Insurance Act of 1968 requires all mortgages backed by Fannie Mae or Freddie Mac to have coverage if the property is located in an area with special flood hazards. Private lenders will, most likely, have similar requirements for mortgage holders in similar areas. In either case, having a policy provided by the National Flood Insurance Program (NFIP) or one from a private insurer will be enough.
You are required to have enough insurance to cover the cost of the development of your property or the maximum limit of coverage, whichever is lower.
Type of home ownership
|Flood Insurance Required||Recommended Amount of Flood Insurance|
|Equal to property development cost or coverage limit.||Equal the value of your home and possessions|
No mortgage or rental
|None.||Equal the value of your home and possessions|
The cost of development includes rebuilding your home if it is destroyed in the event of a flood. The insurance company's underwriter will determine this figure based on factors such as the cost of materials and labor in your area. The replacement value might change every year, as the cost of goods and services fluctuates.
The maximum limit of coverage depends on whether you go choose to buy a federal or private flood insurance policy. Coverage from by the NFIP typically doesn't exceed $250,000. Private flood insurers tend to provide much higher limits. For example, the Homeowners Choice Property & Casualty Company provides coverage up to $500,000 to homeowners in South Carolina.
How Much Flood Insurance Do You Need?
Homeowners and renters living in high-risk flood areas should consider how much insurance they need—not just the required amount. Homeowners and renters insurance policies will not pay out for any damages that resulted from a flood. Therefore, if you think your dwelling or personal possessions are covered by either of those, you should think again.
You always want your flood insurance coverage to equal the value of your home and possessions. The value of these should be determined based on their worth at the time you buy your policy. For example, if you bought a $2,000 built-in refrigerator in 2005, estimate its value based on what that is worth today.
We compiled a list of the median home value in each state to show how house structure values may vary. Keep in mind this doesn't include possessions. We included total value of flood damages recorded in the state during Water Year 2014 (October 1, 2013 – September 30, 2014). If your state tends to be prone to a lot of flood damage costs, consider getting enough flood insurance to cover your home and possessions.
|State||Median House Value||2014 Total Flood Damages|
Many policies also have individual limits on possessions within a specific category. Instead of focusing on the lump sum of coverage, consider how much you will need to protect your individual possessions by categorizing them. For example, if you have a trading card collection worth $10,000, some flood insurance policies may not pay out enough to cover your loss. Private flood insurers may be better suited to insure for speciality items like these.
Here is how limits differ between a private and federal policy:
|Private Insurer Limit||NFIP Limit|
|Fine Art||$5,000||Up to $2,500 for fine art, collectibles, furs, jewelry and business property combined|
|Jewelry & Silverware||$5,000|
|Golf Carts||$5,000||No coverage|
|Additional living expenses||$7,500||No coverage|
The amount of coverage for living expenses is important if you live in an area with extreme flooding. Should your home become uninhabitable, your insurer may cover the cost of relocating and paying for a hotel stay until your house is rebuilt. Federal policies do not protect you from such expenses. Therefore, if this is something you want, you may need to seek out a private insurer.