Exterior of flooded house

Why You Should Purchase Flood Insurance

Many people might believe they are not in danger of incurring flood damage, but these individuals would be mistaken.

Essentially, if it rains where you live, it can flood.

A flood is technically defined as a general and temporary condition where two or more acres of normally dry land or two or more properties are inundated by water or mudflow. And any number of conditions, such as snow melt, flash floods and broken levees, can lead to wreckage on a massive scale. In fact, this is the most common natural disaster in the United States.

Does Homeowners Insurance Cover Water Damage?

Most homeowners insurance policies will not cover damage caused by rain. As such, it is pretty risky to get by with only homeowners insurance coverage when your home could have a 26 percent chance of being damaged by a flooding over the course of a 30-year mortgage versus an only 9 percent chance of being damaged by fire, according to the Federal Emergency Management Agency (FEMA) .

Because standard homeowners insurance policies do not cover this type of disaster, the U.S. Congress created the National Flood Insurance Program (NFIP) in 1968 in order to provide a way for property owners to financially protect themselves against the significant wreckage that can result from rain.

The NFIP, which is administered by FEMA, offers insurance to homeowners, renters and business owners in communities that participate in the program. The actual insurance policies are provided by the nearly 90 private insurance companies with which the NFIP works.

What you end up paying for flood insurance will depend on several factors, including the date and type of construction of your home as well as the risk level for your community.

Defining Risk Areas

While this type of disaster can occur in any community, there are certain areas that are especially vulnerable to this type of disaster. As part of the NFIP, experts evaluate communities, assigning them one of two risk levels:

High-Risk Areas

Also referred to as Special Flood Hazard Areas, or SFHAs, areas that are deemed to be high-risk areas have an at least 1 percent chance of disaster on an annual basis. Homeowners living in high-risk areas with federally regulated or insured mortgages are required to purchase this coverage.

Moderate-to-Low-Risk Areas

Also referred to as Non-Special Flood Hazard Areas, or NSFHAs, areas that are deemed to be moderate-to-low-risk areas have a less than 1 percent chance of flooding on an annual basis. While this type of add-on is not mandatory for those living in these areas, it is highly recommended for all homeowners and renters.

The Estimated Cost of Damage

Water can cause far-reaching wreckage to one's home. Even a few inches of water can result in thousands of dollars in damage. Just imagine having to replace all of your flooring, baseboards and drywall - those costs alone could easily surpass the $5,000 mark.

The NFIP estimates the following costs for water-related damages to a single home:

  • One to four inches of water can result in costs of up to $7,800;
  • Five to eight inches of water can result in costs of up to $11,480;
  • Nine to 12 inches of water can result in costs of up to $18,930;
  • 13 to 15 inches of water can result in costs of up to $22,235; and
  • 16 to 18 inches of water can result in costs of up to $26,285.