What Is Flood Insurance?

Flood insurance is a type of property insurance that covers a dwelling for losses sustained by water damage specifically due to flooding caused by heavy or prolonged rain, melting snow, coastal storm surges, blocked storm drainage systems, or levee dam failure. In many places, a flood is considered a vis major event, and the damage or destruction it causes are uncovered if you do not get supplemental insurance. Flood insurance policies are available for all homes and commercial properties.

KEY TAKEAWAYS

• Flood insurance is a type of property insurance that covers a dwelling for losses sustained by water damage specifically due to flooding.
• Flood insurance policies are available for all residential and commercial properties.
• The federal National Flood Insurance Program (NFIP) offers flood insurance to homeowners in participating communities, along with those determined to be in the NFIP-designated floodplains; though the policies are offered through private insurers, the government sets the rates.1 2
• The pricing of flood insurance policy is based on the NFIP-designated flood zone in which the property is located, as well as the property age, elevation, and the number of floors.3
• The average cost of flood insurance is $700, but the final amount depends on the location and type and size of the structure, among other factors.

How Flood Insurance Works

A type of catastrophe insurance, a flood insurance policy is different than the basic hazard insurance coverage contained in a homeowners insurance policy. Standard homeowners insurance covers interior water damage, due, say, to a burst pipe, or weather events like tornadoes and rainstorms. However, it generally doesn't cover destruction or damage caused by floodwaters. Property owners who live in an area prone to this sort of natural disaster usually need to get special coverage.

Flood insurance basically works just like other insurance products: The insured (the home- or property owner) pays an annual premium based on the property's flood risk and the deductible they choose. If the property or its contents are damaged or destroyed by flooding caused by an external event (rain, snow, storms, collapsed or failed infrastructure), the homeowner receives cash for the amount of money required to repair the damage and/or rebuild the structure, up to the policy limit. Unlike a standard homeowners policy, flood insurance requires that a policyholder buy separate policies to cover a dwelling and its contents. A separate coverage rider is needed to cover sewer backup if the backup was not caused by the rising floodwaters.

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