How Much Flood Insurance Do You Need?

Flood insurance is usually only required if you live in a high-risk flood area and have a mortgage on your home. However, it's worth considering even if only one — or even neither — condition applies to you. Federal law states that any mortgage backed by the government must have flood insurance if the house is located in a Special Flood Hazard Area (SFHA).

You need to be covered for your property's rebuilding cost or to the maximum coverage available to you. Private insurance companies often require flood insurance for high-risk homes, too. You are only required to get minimum coverage, but you may need more to fully protect your home and possessions.

Minimum flood insurance requirements

If you have a federally backed mortgage, such as an FHA loan, and live in a high-risk flood zone, you must buy flood insurance. The National Flood Insurance Act (NFIA) of 1968 and the Flood Disaster Protection Act (FDPA) of 1973 created flood insurance regulations mandating that all mortgage lending companies backed by Fannie Mae or Freddie Mac require flood insurance if a house is located in an area with a 1% chance or more of flooding. These areas are sometimes also called 100-year flood zones.

Mortgage companies require flood insurance, because they have a financial stake in the property. If a house is totally destroyed by a flood, and the homeowner decides to abandon the home and stop making payments, the mortgage company would be stuck with the worthless property. Flood insurance mitigates this risk.

You must have enough insurance to cover the cost of the development of your property or the maximum coverage, whichever is lower.

Guidelines for who must purchase flood insurance

The cost of development includes rebuilding your home if it is destroyed in a flood. The insurance company's underwriter will determine this figure based on the materials your home was made of and the cost of materials and labor in your area. The replacement value may differ from year to year, as the costs of goods and services change over time.

The maximum limit depends on whether you choose a federal or private flood insurance policy. Coverage from the NFIP typically can't exceed $250,000 for your home's structure and $100,000 for your personal property. Private flood insurance companies can provide much higher limits. For example, the Homeowners Choice Property & Casualty Insurance Company offers up to $500,000 of coverage to homeowners in South Carolina.

How much flood insurance do you need?

If you own or rent a home in a high-risk flood area, consider how much insurance you need, not just the required amount. Flood insurance coverage should always equal the value of your home and possessions, so you'll be fully reimbursed if the worst happens.

The cost to rebuild your home is based on several factors, including the size of your house, the quality of materials used and the cost of labor. Your home insurance company can likely provide you with an approximate rebuild cost, especially if you recently purchased homeowners insurance.

Next, figure out the total value of your personal property. This includes everything inside your home, such as furniture, clothing, appliances and other belongings. Some items, such as outdoor furniture and golf carts, may be exempt from coverage though.

When shopping for flood insurance, remember that many policies also have limits within a 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 insurance companies may be better able to insure specialty items like these.

NFIP limits for flood insurance coverage

If these limits aren't high enough to cover all of your belongings, private flood insurance is likely the better option. Take note: NFIP flood insurance does not provide coverage for additional living expenses, such as a hotel or apartment if your home is uninhabitable due to flooding. If you live in an area at high risk of flooding and don't have a place to stay, like a family member's house, consider a private company that provides coverage for living expenses.

Can I remove or minimize my flood insurance requirements?

Flood insurance can be very expensive, especially for homes in SFHAs that are at high risk of flooding. There are a few methods you can try to reduce or remove flood insurance requirements, but they won't all work in every situation.

In general, these actions may relieve you of the requirement to buy flood insurance or result in cheaper flood insurance premiums. Flood insurance is important for any homeowner whose property is at risk of flooding, even if coverage is not required.

Research insurance requirements before you buy

Home sellers and lenders don't have to tell you about flood insurance requirements ahead of time. It's up to you to verify whether a home is in a high-risk flood zone and requires flood insurance. Before you put any money down to buy a house, check for flood insurance requirements and rates as part of your full inspection, so you know what you'll have to pay.

Use a conventional mortgage

All federally backed mortgage companies require homeowners in high-risk areas to buy flood insurance, but not all private companies do. If you are able, opt for a conventional mortgage, which may have looser rules for flood insurance.

Petition to remove your flood insurance requirement

It's possible that the FEMA flood map incorrectly lists your home as being in a flood zone. If you believe your home should not be subject to a flood insurance requirement, you can petition FEMA to revise their flood map so that your house is outside the flood zone. This option typically involves paying a surveyor to inspect your home, can cost hundreds or thousands of dollars and comes with no guarantee that the flood zone will be adjusted.

Check prices at multiple private companies

NFIP flood insurance prices are the same at every insurance company, but rates from completely private flood insurance companies may not be. It's worth checking with multiple local flood insurance companies to see who offers the most affordable coverage.

Push for large-scale flood mitigation measures

Cities like New Orleans have significantly reduced their residents' flood risk by putting active flood control measures in place, such as floodwalls, including levees. If your neighborhood is at high risk of flooding, encourage your elected representatives to explore similar measures in your area. These protections can bring your flood insurance premiums down by a lot.