Should You Get Flood Insurance for Your Home?

In the weeks since Hurricane Ida flooded her Maplewood, N.J., basement with eight inches of water, Ingrid Nagy has been trying to figure out how to financially protect herself from the next big storm.

Because her homeowner’s insurance did not cover flood damage, she was unable to pay for professionals to help her dry out the space, demolish the knotty pine walls and dispose of her soggy possessions. Instead, she and her husband did it on their own.

“If I could have drawn on the insurance company, I would have,” said Ms. Nagy, adding that the hurricane, which rolled through the region on Sept. 1, caused the worst flooding she’s experienced in the 30 years she has lived in the three-bedroom house. “My preference would have been to bring in a remediation company.”

Now, for the first time, she’s shopping for flood insurance.

Ms. Nagy, who previously worked in marketing, is among the millions of Americans who do not live in areas considered high risk for flooding, and so are not required to buy flood insurance if they have a federally backed home mortgage. Because insurance isn’t required for most homes, only about 20 percent of U.S. homes have flood insurance (most through FEMA’s National Flood Insurance Program), yet 90 percent of natural disasters involve flooding, according to the Insurance Information Institute.

“Flooding can happen just about anytime in any place,” said Mark Friedlander, a spokesman for the Insurance Information Institute.

Essex County, which includes Maplewood, experienced severe flooding during Ida, but only 2.5 percent of homes there have federally backed flood insurance, according to Mr. Friedlander. Homeowners without adequate coverage paid for their losses out of pocket, or filed claims with the Federal Emergency Management Agency after the area was declared a federal disaster zone.

In general, floods are costly disasters — one inch of water can cause as much as $25,000 in damage, according to FEMA. As sea levels rise and storms get bigger, wetter and more frequent, more homes will flood and they will flood more often, leaving homeowners increasingly vulnerable to catastrophic property losses.

“The chances for flood damage are already bad and it’s going to get worse,” said Andrew Hurst, an insurance research analyst at ValuePenguin, a personal finance website.

“The most marginalized people are the ones who are going to be most affected,” he added, because they are more likely to live in areas more vulnerable to the effects of climate change, frequently receive a smaller share of federal disaster aid, and are less likely to be able to afford the high cost of insurance.

The National Flood Insurance Program

About 75 percent of all flood insurance policies are administered by FEMA’s National Flood Insurance Program. You can buy one of these policies through a local insurance broker or get referred to one by calling the national program at (888) 379-9531.

Any renter, homeowner or business owner in one of the 23,000 participating communities is eligible for a policy, with rates set by FEMA. But those rates are changing. Currently, the average annual premium is $734, according to ValuePenguin. But a new rating system, called Risk Rating 2.0, which FEMA rolled out this month, takes into account a home’s location, its size and its overall flood risk. While 23 percent of policy holders will see their rates drop under the changes, 66 percent could see their rates rise by as much as $120 a year, and 4 percent could see their rates rise by $240 a year. Existing policyholders will see rates rise beginning in April. Lawmakers from coastal states, including New York and New Jersey, have urged Congress to block the new rates.

The national program’s coverage is reliable, but it’s limited. Residential policies max out at $250,000 for the building and $100,000 for contents. And not all contents are covered. If your basement floods, your policy could replace your walls, boiler and hot-water heater, but not the cost of replacing any personal possessions in the basement, like sofas, televisions and clothes.

If you have a finished basement or live in an expensive area like New York, a national flood policy would probably not make you whole in a major disaster. “If you have a $500,000 home, you may have a huge gap” in coverage, Mr. Friedlander said.

There are other limits, too. These policies do not cover living expenses, so if you have to move out temporarily, you’ll have to cover those costs yourself. And new policies generally take 30 days to take effect, so homeowners looking for coverage for the rest of the 2021 hurricane season, which lasts through November, may be left without coverage during a high-risk period this year.

Private Flood Insurance

Private flood insurance typically offers more flexible coverage, but it isn’t available in all markets. Prices are not set by the government, so they fluctuate based on the provider’s risk assessment. And unlike the National Flood Insurance Program, a private carrier could drop you in the middle of a term or deny your renewal, potentially leaving you in the lurch in a disaster, according to ValuePenguin.

However, a private policy means you could insure your basement possessions, add extra coverage for your home and its contents, and get coverage for additional living expenses. Private policies also usually take effect faster than the national program. Most private insurance policies offer up to $500,000 in coverage, according to Ted Olsen, a managing director at Goosehead, an insurance brokerage based in Texas. Chubb, which specializes in high-end homes, provides flood coverage with limits up to $15 million, according to the company. Higher coverage, however, comes with higher premiums.

Private insurance prices vary, and can sometimes be lower than the national program, depending on where you live. The average premium for private policies in high-risk zones is around $1,500 a year, and the average for low-risk areas is around $600, Mr. Olsen said.

Regular homeowner’s insurance, on average, costs $1,312 a year, according to Bankrate.com. So buying flood insurance could mean more than doubling your insurance costs. But insurance providers insist it’s a cost worth considering.

“People are four times as likely to flood than they are to have their house catch on fire,” Mr. Olsen said. “Every single person has fire insurance, if they have homeowners insurance. The reality is flood insurance is more important than fire insurance. But because it’s not included or required, most people don’t have it.”

Sump Pumps and Sewage

Even an extensive flood insurance policy can’t completely protect you from water in your home. For example, if your sump pump fails or a municipal sewer line backs up into your home, as happened to some homeowners during Hurricane Ida, you could be left without protection. These kinds of events would not be covered by a flood policy or a standard homeowners policy.

You could, however, add a separate endorsement to your standard homeowner’s policy to cover these types of backups. A sump pump or sewage backup rider covers anywhere from $5,000 to $50,000 in damages, depending on how much protection you buy, adding around $30 to $200 a year to the premium of your standard homeowner’s insurance policy, according to Mr. Olsen.

Still Hunting

As for Ms. Nagy, she’s still shopping. The initial quotes she received, starting at $1,100 a year for private coverage, came as a shock. “I almost passed out with this first quote,” she said.

She initially hoped she could get coverage for less than $500 a year since she lives in a low-risk flood zone. But since she wants coverage for her basement, the space most vulnerable to floodwaters, she is limited to looking at private policies.

Another quote, with a $1,500 annual premium, included coverage for her basement contents and structure. She’s not sure whether she should pay the premium or grow her savings to cover the cost of another flood out of pocket.

“Is there any scenario I can paint where this would actually be of value to us?” she said. Or do “we accept the responsibility of having that kind of cash on hand to deal with this when it happens?”

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