The Importance of Flood Protection and How Flood Insurance Premiums Are Determined

On February 16, 2023, the governor of West Virginia declared a state of emergency due to severe flooding throughout the state. Scenes from after the flood were heart-wrenching as people assessed not just the damage to their property, but also the overwhelming disruption to their lives. Mudslides blocked roads, waterways overflowed, and numerous homes were damaged.

Only 4% of residents nationwide have federal flood insurance, even though most catastrophes involve flooding. The likelihood of flooding over a 30-year mortgage in a low-risk-flood hazard zone is 26%. And just one inch of water can cause up to $25,000 worth of damage, while a flood policy can cost as little as $300 a year.

The latest data analysis from Hurricane Ian has reminded us of the extensive damage a natural disaster can cause. It was also a wake-up call that too many people are at risk for the terrifying cost of flood — those in flood zones and those outside of flood zones. Because no matter what “zone” you’re in — if it can rain, it can flood.

Federal Flood Assistance Comes at a Cost

We hope that you never do, but if you experience a flood, it’s important to understand that any federal assistance is likely to be in the form of a loan that will need to be repaid. In situations like these, having the right insurance coverage can provide a lifeline of financial protection. Flood policy premiums can vary, and while each property will be assessed differently, here are several factors that can impact what you’ll pay.

Location, flood zone and use of the property. Like all insurance, flood premiums vary based on risk levels. So if you’re in a high-risk flood zone, like a coastal area, your costs will be higher. Preferred risk policies, which have lower premiums, are designed for properties located in low-to-moderate risk flood zones. Your insurer will also take into account whether or not the structure is used as your primary residence.

Age, design and construction of the building. Newer buildings are typically built to stricter building codes, which can help reduce the risk of flood damage — and often lower the price of flood insurance. Factors such as whether your home is compliant with local flood plain ordinances, the elevation of your lowest floor and the design of your utilities can impact coverage costs.

Deductible amount and coverage limits. The deductible (amount the policyholder must pay out of pocket before insurance coverage kicks in) also impacts the price of your flood insurance. Higher deductibles can lower premiums, while lower deductibles will tend to raise them. Similarly, a higher coverage limit — or the maximum amount the insurance company will pay in the event of a claim — also typically comes with a higher premium.

The insurer. Flood coverage costs also vary among private insurers. The underwriting guidelines and pricing models used to calculate policy premiums may differ from one provider to the next, resulting in different rates for similar protection. The National Flood Insurance Program (NFIP) is a government-subsidized program that provides flood insurance to policyholders in participating communities. And while it can offer lower-cost protection than comparable private market policies, NFIP policies have specific coverage limits that may not be sufficient to meet your needs: the maximum coverage for residential property is $250,000, and the limit for contents is $100,000.

Find the Coverage You Need

Remember, most homeowners’ policies don’t cover floods, but flood insurance is available as a separate policy. Coverage is available for condominiums, apartments and commercial structures. Your local We Insure agent can help you evaluate what you need to safeguard your home and property, and they will shop your available options to find you the right protection at the best price.

Don’t let a flood wash away your dreams — protect yourself today.

Sources

https://floodlist.com/america/usa/floods-kentucky-westvirginia-february-2023

https://www.floodsmart.gov/what-impacts-my-premium-and-policy-costshttps://www.fema.gov/press-release/20210318/fact-sheet-myths-and-facts-about-flood-insurance

https://www.floodsmart.gov/