The One Expensive Thing Your Homeowners Insurance Probably Doesn’t Cover

published May 3, 2019
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When you purchase a home, it’s smart to invest in homeowners insurance. In fact, you probably don’t have a choice: Your mortgage lender will more often than not mandate it. As a first-time buyer, you might wonder exactly what is and what isn’t covered by your new homeowners insurance policy. It turns out, your standard homeowners insurance isn’t exactly a one-stop shop that covers every and any disaster. Sure, it covers a lot of them, but not all. One thing it likely doesn’t cover? Flood damage.

What exactly does standard homeowners insurance cover?

The idea is that your homeowners policy should cover the costs to repair your home if it has been damaged. According to Allstate, basic homeowners insurance covers fire damage, theft, vandalism, falling objects, explosions, water damage (from, say, a burst pipe or broken washing machine), and even a visitor’s medical costs if they’re injured inside your home. Coverage should also include additional living expenses, i.e. somewhere you can temporarily stay while your home is being repaired.

But standard policies don’t usually cover normal wear and tear, earthquake damage, and flood damage (which includes mudflow). So certain homeowners may want to look into supplemental insurance—especially if they live in a disaster-prone area.

Bottom line: You likely need to purchase separate flood insurance

Not sure if you need to worry about flooding? You can find out by simply entering your address in FEMA’s website.

The Federal Emergency Management Agency (FEMA) determines a flood-prone area if it has a one percent chance of being flooded any year, within 100 years. If you live in one of these “100-year flood” zones, FEMA and your mortgage lender will require you to get flood insurance.

But even if you don’t live in a high-risk zone, you might want to purchase flood insurance. According to FEMA, more than 20 percent of flood claims actually stem from houses outside of high-risk areas.

How do you buy flood insurance?

You can purchase flood insurance the same way you did your standard homeowners insurance (or renters insurance) policy: through an insurance agent. FEMA has a National Flood Insurance Program (NFIP), which helps provides low-cost insurance to property owners. You would still need to purchase flood insurance through an agent participating in the NFIP. According to Bankrate, flood insurance through NFIP only covers $350,000 worth of damage—both for the exterior and interior contents. If your property is worth more than that, it’s recommended to purchase supplemental flood insurance.

What does flood insurance cover?

According to Consumer Reports, flood insurance will cover all the essential systems in your home (including plumbing, water heaters, and air conditioners), appliances (such as your fridge and all the contents in it), flooring and wood paneling, your home’s foundation and its various parts, your garage, and valuables up to $2,500.

However, it usually doesn’t cover anything that’s stored in your basement or improvements to your basement (i.e. finished walls, floors, or ceilings). It also doesn’t cover damage to vehicles, destruction of any type of currency, mildew damage that wasn’t directly caused by the flood, any kind of wreckage due to earth movement, living expenses while you wait for your house to be restored or rebuilt, a loss of income you might experience with your property (if it’s your place of business or if you rent it out), and any property outside of your house (such as trees, decks, and pools).

How much does flood insurance cost, and is it worth it?

First of all, you might not have a choice. If you live in a high-risk flood zone, your mortgage lender will probably require you to pay for flood insurance. There are very few reasons why your bank would waive your requirement—and many of these reasons require working with FEMA to prove that a property is free from flood risk, either because their map is wrong or the property has been securely raised above the base flood elevation.

According to Bankrate, flood insurance premiums will run you approximately $660 annually, but it does depend on whether your property is low or high-risk. For low-risk homes with a total maximum coverage of $350,000, annual premiums run around $405 ($452 if you have a basement), whereas high-risk homes can cost you more than $2,500 per year in premiums. According to, a site affiliated with the National Association of Realtors, the average flood claim in the U.S. is $30,000.

Amanda Bryant, director of operations at National Flood Insurance, LLC, in Melbourne, Florida, says flood damage is the most underinsured risk in the U.S., and that may be due to lack of awareness. “When FEMA created the NFIP [in 1968], they did not have the technology, manpower, or funding to do an accurate flood risk assessment on every home in the country,” Bryant says. This resulted in dividing properties into only two categories: high flood risk and low-to-moderate flood risk.

Bryant adds that FEMA hasn’t been able to keep up with shifting weather patterns and the increase of coastal housing development. According to a reported feature by Bloomberg, as of 2017, only 42 percent of FEMA maps “adequately identified the level of flood risk.”

Why does standard homeowners insurance not cover flood damage?

According to The Simple Dollar, it’s a matter of economics (or what the insurance industry calls “adverse selection”: If insurance companies supplied flood coverage to all consumers, they would not be able to cover the costs. For one, floods are very common: The odds of a catastrophic fire (an example of a disaster that’s covered by standard insurance) versus flood damage are far lower—the National Association of Insurance Commissioners estimates that in the span of a 30-year mortgage, homeowners are 27 times more likely to experience a flood than a fire.

According to FEMA, not only are floods the most common natural disaster, their aftermath is also the most expensive to deal with. According to a 2017 article by the Pew Charitable Trust, floods cost Americans more than $260 billion between 1980 and 2013. According to FEMA, just one inch of water of flooding in an average home can rack up to $27,000 in damages.

What if you can’t afford flood insurance?

FEMA’s website states that even when there is a Presidential Disaster Declaration and federal disaster assistance kicks in, the homeowner will have to pay the government back with interest unless they’ve been offered a disaster grant (usually the amount from the grant isn’t nearly enough to repair your home and cover all of your losses). Bryant says that in addition to repaying the government (with interest), the property owner “must immediately purchase a flood insurance policy, and agree to carry flood insurance on the property as long as they own it.” The homeowner will then have to show proof of the policy to FEMA before they’re able to get any kind of assistance.

The bottom line? If you live in a high-risk flood zone, chances are you probably already have flood insurance. If you don’t, then do your research and decide if it’s worth paying an annual premium that will protect your house in the off-chance of a flood. Most insurance agents will recommend flood insurance, since flood damage doesn’t even have to be calamitous for it to cost you thousands of dollars to repair. Denny Wu, licensed insurance broker with Wu Advisors Inc., says that even a night of heavy rain could do enough damage to warrant having flood insurance.

While flood insurance might seem like an unnecessary precaution now, you could one day be thankful you invested a few hundred dollars a year versus having to pay for all the damage out of pocket.

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