Flood Insurance – Is It Worth the Investment for Your Property?

Floods are the most common natural disaster in the United States, and just 1 inch of water can cause $25,000 worth of damage. If you live in an area with a history of flooding, getting flood insurance is a wise investment. Homeowners and renters can get building and contents coverage through the National Flood Insurance Program (NFIP) and private insurers. An independent agent can help you figure out what your premium should be.

Cost

Homeowners who live in areas with a history of flooding or proximity to bodies of water that can flood will likely need to purchase flood insurance. However, even homeowners in lower-risk areas may want to consider buying a policy to protect their investment and provide significant financial support should they experience flood damage or loss.

The cost of flood insurance in New Jersey will vary, depending on your location and the building and contents coverage you purchase. You can compare rates online with simple inputs, such as your home’s elevation, property risk factors, and how much you are willing to pay for your deductible. Your home’s age and construction materials can also affect flood insurance costs. Older homes and those built with older materials are generally more expensive to insure than newer homes.

Additionally, if your community participates in the National Flood Insurance Program’s Community Rating System (CRS), you can qualify for discounts that bring down your rate. Purchasing a flood policy can be complex because you must balance the need for peace of mind against the insurance cost.

While the NFIP offers affordable policies, you can always shop for more competitive rates from private insurers. Additionally, you can save money by choosing a higher deductible to reduce your premium cost.

Coverage

Flooding is one of the most destructive forces that can affect homes. One foot of water can cost a typical home more than $29,000 to repair. While standard homeowners insurance may cover some forms of water damage, flooding is a unique threat that requires a specific policy.

The National Flood Insurance Program (NFIP) provides policies, and many lenders require it for loans on properties in areas considered at high risk for flooding. The NFIP website allows property owners to enter their address and check whether the area is in a Special Flood Hazard Area.

For those in moderate-to-low-risk zones, the NFIP offers Preferred Risk Policies that provide building and contents coverage for one price. Private insurers also offer a variety of plans. Understanding what is and isn’t covered by a flood insurance policy is essential because it can make all the difference. 

The value of damaged personal property is typically assessed on a replacement cost or actual cash value basis, depending on the property type. Replacement cost is the current price of replacing the item, while actual cash value takes into account depreciation. For example, wall-to-wall carpeting may lose up to 14 percent of its value over time. For this reason, keeping receipts for expensive items like electronic equipment, major appliances, and wall-to-wall carpeting is a good idea.

Requirements

Most mortgage lenders require homeowners in high-risk flood areas (zones A or V on FEMA maps) to buy a flood insurance policy. The government offers a national flood insurance program, the National Flood Insurance Program or NFIP, which sells policies most mortgage lenders accept.

But even if your home is in a moderate- or low-risk area, federal law requires you to purchase a flood insurance policy if you have a mortgage backed by the federal government. And many private insurers now offer flood coverage, too. The cost of flood insurance varies.

Generally, a property’s cost is determined by its age, location, the year it was built, and the level of risk associated with it. Other factors, such as the distance from a water source and the amount of coverage purchased, can affect prices, too. If you want to minimize costs, consider elevating your home. Also, removing utilities from basements and crawl spaces helps reduce your risk.

Another option is to work with your community to implement flood safeguards in your area so that it can get de-designated as a high-risk zone, which could lead to lower insurance rates. In addition, a new policy option called Risk Rating 2.0 allows your agent to price your flood risk on a much more individualized basis, which may help lower your rates.

Discounts

If your property is in a flood zone, you must carry a separate flood insurance policy, which may be provided by the National Flood Insurance Program (NFIP) or private insurers. The cost of the NFIP policy is usually lower, but both types have a maximum coverage limit that homeowners should be aware of. You will also be required to pay a deductible for any claims you make, although the size of this amount can vary.

In general, higher deductibles mean lower premiums, but you must carefully balance this against the possibility that you may not need to file a claim. NFIP rates are partially determined by the elevation of your home and its proximity to any floodplains, but there are steps that you can take to lower your rate. For example, moving machinery and equipment like your furnace or water heater away from the basement floor can help reduce your risk.

Similarly, installing flood vents will help to equalize pressure on walls caused by flowing water. Flood insurance policies are not intended to cover cosmetic damage, so new carpeting and furniture will not be covered. They also won’t cover expenses for staying in a hotel while your house dries, as mold and mildew aren’t typically included in these policies.

Additionally, most NFIP policies are adjusted on an actual cash value basis, so your payout in the event of a loss will be based on what your items were worth at the time of the flood, less any physical depreciation.