What’s the Deal With Flood Insurance? All Your Questions Answered

Floods are the most common natural disaster in the United States. And they can be devastating: Just an inch or two of water can cause more than $25,000 in repairs and lost property. 

Flood insurance, however, is unique. Most policies are sold and backed by the federal government, and homeowners insurance generally doesn’t cover flood damage.

But that valuable protection comes at a cost: roughly $888 on average nationwide in 2023.

Here’s how much flood insurance costs now along with ways to save money in the future.

What Is Flood Insurance?

Flood insurance is a type of property insurance that covers a home or business against water damage caused by flooding. Standard home insurance doesn’t cover that kind of damage.

Flood insurance is available in over 22,600 communities across the U.S. It’s required for homes with government-backed mortgages that sit in areas deemed “high-risk” by the Federal Emergency Management Agency (FEMA).

Many banks also require flood insurance in high-risk zones.

Coverage is primarily issued by the National Flood Insurance Program (NFIP), which works with more than 50 insurers to sell its policies. Private companies also sell flood insurance, though these policies make up just a small fraction of the overall flood insurance industry.

More from The Penny Hoarder: What to consider before filing an insurance claim

How Much Does Flood Insurance Cost?

The average cost of flood insurance from the National Flood Insurance Program is roughly $888 a year, or about $74 a month.

Your specific flood insurance cost will depend on many factors, including your home’s location, size and elevation.

For example, if you live in a high-risk flood hazard area — like zones A, AE or AO — your flood insurance rates will be much higher than a homeowner living in a lower-risk area.

Average Flood Insurance Costs by State

The Penny Hoarder used data from Policygenius’s analysis of 2023 FEMA pricing data to calculate the national and state average costs of flood insurance. The analysis is based on the average policy cost with the National Flood Insurance Program (NFIP) — which provides the vast majority of flood insurance policies in the U.S. — however, it doesn’t take into account what homeowners might pay for private flood insurance.The national average does not include U.S. territories. Flood insurance premiums include the federal policy fee that policyholders pay to renew or purchase a policy.

4 Factors That Impact Your Flood Insurance Rate

Certain factors, like your home’s location and age, make your property costlier to insure. Policy details also help determine flood insurance costs.

1. Flood Risk

This may seem obvious, but your flood insurance rates are largely determined by how susceptible your home is to flooding. 

Homeowners located in what’s known as a special flood risk hazard area pay the highest flood insurance rates, while people in moderate- and low-risk zones can usually qualify for much lower rates.

For decades, flood maps were the primary tool used by insurance agents and lenders to determine your flood risk. FEMA’s flood insurance rate maps use different codes to designate an area’s flood risk. 

Zones beginning with the letter A or V — including AE or V1 — are considered hazard areas. Zones beginning with the letters B, C or X are low- or moderate-risk areas.

You can see what flood zone you live in by visiting FEMA’s Flood Map Service Center and searching your property’s address.

Under FEMA’s Risk Rating 2.0 system, flood maps are still important, but the agency also now considers risks facing each individual property, such as distance to a water source and the cost to rebuild.

2. Home Construction

How your home is built also factors into your flood insurance costs.

Some building characteristics that impact your flood risk:

• Foundation type: Homes with above-ground foundations are less prone to flooding than underground foundations.
• Number of floors: Buildings with several floors spread risk over a larger area.
• Unit location: Units on higher floors have a lower flood risk.
• Construction type: Masonry walls perform better during floods than wood frame walls.

3. Coverage Types and Amounts

The more coverage you need, the more your flood insurance will cost.

• For residential properties, you can secure up to $250,000 in building coverage to cover damage to your home’s structure. You can also buy up to $100,000 in personal property coverage.
• For commercial properties, you can secure coverage up to $500,000 for the building and $500,000 for the building contents.

Renters can purchase personal property-only coverage to insure their belongings.

Remember: Your mortgage company may require you to purchase a certain amount of building and contents coverage.

Related: The Penny Hoarder’s picks for the best savings accounts this month.

4. Deductible

Just like health insurance and car insurance, opting for a higher deductible will net you a lower flood insurance premium.

A deductible is the amount you pay out-of-pocket before flood insurance picks up the rest. So if your home suffers $100,000 in damage and you have a $2,000 deductible, you’ll be on the hook for the first $2,000 before your insurance policy covers anything.

Is Flood Insurance Getting More Expensive? FEMA’s 2.0 Risk Rating

Flood insurance rates have increased for millions of Americans following the rollout of FEMA’s 2.0 Risk Rating system.

In the past, flood maps were the primary tool used to calculate someone’s flood insurance premiums.

FEMA says the Risk Rating 2.0 methodology does a better job of calculating each home’s actual flood risk by taking additional factors into consideration.

Risk Rating 2.0 calculates your flood insurance rates based on the following flood risk factors for your property:

• Foundation type
• Structure
• Elevation
• Replacement cost
• Flood frequency/frequency of different flood types
• Distance to water

FEMA’s more individualized approach to risk assessment went into effect for new policies in December 2021 and for existing policies in April 2022. It was fully implemented on April 1, 2023.

Risk Rating 2.0 helps keep NFIP stay solvent as claims rise but it’s also putting a financial strain on homeowners.

The new pricing system raised the cost of flood insurance for about three-quarters of policyholders, while about 20% of policyholders saw a decrease in premiums.

While premium increases are modest for most policyholders, people living in high-risk zones — like low-lying coastal communities in Florida — will likely see their rates continue to rise year after year.

FEMA isn’t allowed to raise flood insurance rates by more than 18% per year.

However, according to an April 2020 report by the Congressional Research Service, “other categories of properties are required to have their premium increased by 25% per year until they reach full risk-based rates.”

This includes non-primary residences, properties with substantial cumulative damage and those that sustained substantial damage since 2012.

The number of households nationwide covered by the NFIP has declined by more than 165,000 since the new pricing structure went into effect, according to FEMA data analyzed by The New York Times.

How to Save Money on Flood Insurance Coverage

Flood insurance may be getting more expensive but there are steps you can take to reduce your costs.

Unfortunately, there’s no quick fix and you may need to make a sizable upfront investment to your property.

Flood Proof Your Home

Making an investment to mitigate your home’s flood risk can help lower your flood insurance costs in the future.

FEMA recommends improvements like elevating utilities, installing flood openings, filling in basements and elevating your property.

You can check out FEMA’s Homeowner’s Guide to Retrofitting to learn more about ways to protect your home against flooding.

Get an Elevation Certificate

An elevation certificate is a document that details your home’s flood risk and elevation. You can provide an elevation certificate to your insurance agent to determine if it will lower your flood insurance costs.

To request a copy of your elevation certificate, call your town or city government office and ask for the floodplain manager. It might also be included in your property deed.

If your home doesn’t already have an elevation certificate, you’ll need to hire a land surveyor or architect to create one, which can cost about $600.

Go With a Higher Deductible

Picking a higher deductible or buying less coverage is another way to lower your flood insurance premiums.

But be warned: This money saving trick is risky.

A higher deductible means you’ll pay more out-of-pocket if you need to file a claim with the insurance company. And lower coverage amounts may not adequately protect your home or belongings.

Check for Community Discounts

If your community participates in the NFIP’s Community Rating System (CRS), you could be eligible for a discount. The CRS is a voluntary program that incentivizes communities to implement stronger flood protection measures. 

Discounts on flood insurance premiums through this program range from 5% up to 45%.

Policyholders in CRS communities save an average of $162, or 15%, per year on their flood insurance policy, according to FEMA. 

Who Needs Flood Insurance? When Is Flood Insurance Required?

Property in high-risk flood areas with government-backed mortgages are required to have flood insurance. Your bank may also require it.

Even if you’re not required to purchase flood insurance, it’s worth considering. About 40% of NFIP flood insurance claims from 2015 to 2019 came from policyholders outside a high-risk flood area.

What Does Flood Insurance Cover?

Flood insurance covers water damage to your home and belongings caused by natural flooding such as overflowing lakes and rivers, hurricane storm surge, a heavy downpour, rapid snowmelt and mudslides.

There are two types of NFIP coverage — building coverage and contents coverage.

What building coverage insures:

• The property’s foundation, walls and staircases
• Electrical and plumbing systems
• Furnaces and water heaters
• Refrigerators, stoves and built-in appliances, like dishwashers
• Permanently installed carpeting
• Cabinets, paneling, bookcases and window blinds
• Detached garages
• Fuel tanks, well water tanks and pumps and solar energy equipment

What contents coverage insures: 

• Personal belongings, including clothing, furniture and electronics
• Curtains
• Washer and dryer
• Portable and window air conditioners
• Microwaves
• Valuable items such as original artwork and jewelry (up to $2,500)

What Isn’t Covered by Flood Insurance?

Flood insurance doesn’t cover all types of flood damage. Flooding that originates inside your property — like a burst pipe — is usually covered by your homeowner’s insurance policy.

Flood insurance also won’t cover certain types of property damaged in a flood, including:

• Cars and other vehicles
• Landscaping, wells, septic systems, decks and patios, fences, seawalls, hot tubs and swimming pools
• Currency, precious metals, stock certificates and other valuable papers
• Property stored in a basement

What Is Private Flood Insurance?

FEMA flood insurance isn’t your only option. You might be able to buy flood insurance from a private insurer to replace or supplement your federal coverage.

Private flood insurance refers to policies that aren’t underwritten and backed by the federal government. That means they’re riskier because a private flood insurance company can choose not to renew your policy — or even cancel it.

However, private flood insurance may be a good option for some people, especially those with high-value homes. NFIP only covers building damage up to $250,000 but some private insurers, such as Neptune, offer policies with coverage worth up to $4 million.

How to Get Flood Insurance

To get an NFIP policy, contact your home insurance broker or agent. You can also find a flood insurance provider by using this tool on FEMA’s website, or you can call 877-336-2627.

The NFIP works with more than 50 insurers to sell flood insurance policies, so you can usually get coverage with the same insurance company that provides your auto or homeowners coverage.

To get private flood insurance, you’ll need to contact different companies directly. Some major companies include Neptune, Chubb and Aon Edge.

Rachel Christian is a Certified Educator in Personal Finance and a senior writer for The Penny Hoarder.