What You Need to Know About Maximum Flood Insurance Coverage

Just one inch of water can do¬†more than $25,000 in damage¬†to your home, yet standard homeowners insurance won’t fix it. And renters’ insurance¬†won’t replace belongings damaged by flooding.

New Jersey residents are familiar with flooding risks caused by hurricanes, especially along the coast. But flooding can happen anywhere. Your average rain storms, snowmelt, burst water mains, poor drainage, and construction projects can all cause flooding.

Without the right insurance, you’ll be paying the bills yourself so having maximum flood insurance coverage could be a critical component of your financial recovery after a disaster.

Who Needs Flood Insurance?

Whether you own your home or rent, you probably already know you need insurance. You want to protect your property should something unfortunate happen. But you may ask, “Do I need flood insurance?”

The answer is yes. That’s especially true if you live in a flood-prone area. The Federal Emergency Management Agency (FEMA) has mapped the United States, and it’s determined which areas have a higher risk of flooding and which are lower risk.

If your home is in a FEMA-designated Special Flood Hazard Area (SFHA), your mortgage lender may require you to buy flood insurance. If you have a federally regulated or insured mortgage,¬†like Fannie Mae, you’re required by law to have flood insurance.

Even people who don’t live in flood-prone areas should have flood insurance. After all, people living in moderate to low-risk areas file about 25% of all flood claims.

Other types of insurance won’t cover flood damage, even in low-risk areas. Comprehensive personal automobile insurance is one of the only exceptions. So, if you don’t have flood insurance and your home floods, you will be the one paying for the repairs.

The National Flood Insurance Program

Floods are the most common and¬†most destructive natural disasters¬†in the United States. Since damage from flooding isn’t covered under homeowner and business insurance, the federal government¬†had to step in with federal disaster assistance.

Congress passed the National Flood Insurance Act of 1968 to reign in the cost of federal disaster relief. The law made affordable flood insurance available to homeowners, business owners, and renters. FEMA manages the program.

Underwritten by the National Flood Insurance Program (NFIP), a flood insurance policy can cover damage done to your home and belongings by flooding. Renters can also buy flood insurance to cover their possessions.

What Does Flood Insurance Cover?

Flood insurance, like other building and personal property insurance, comes in various coverage levels. Your flood risk, your flood insurance coverage limits, and the amount of your deductible help determine your premium rates.

So how much does flood insurance cost? NFIP flood insurance comes in two policies, and premiums, coverage amounts, and deductibles are set separately for each. Your costs are determined by your risk, coverage level, and deductible amounts.

The first type will cover damage done to your home by flooding. This policy will generally cover your home and its fixtures. This includes repairs for structural damage, flood debris clean-up, plus repairs or replacement of your furnace, water heater, central air-conditioning, and electrical and plumbing systems.

The other NFIP flood policy covers your belongings. You’ll need a careful inventory of your possessions to ensure your flood insurance policy is adequate. You’ll also want to consider how much you might be able to pay out of pocket before setting your deductible.

Items like furniture, electronics, housewares, bedding, clothing, and other personal items are usually covered (up to $100,000) if they aren’t stored in a basement. Basements are considered a higher risk for flooding, so coverage for damages below the first floor is limited.

Flood insurance is also available for renters. These policies can cover your belongings (up to $100,000). Many factors go into calculating renters’ flood insurance premiums. These include the age of the building, its flood risk level, number of floors, which floor you live on, and other factors.

Maximum Flood Insurance Coverage

Premium costs shouldn’t be the only factor in determining the level of flood insurance you buy or where you set your deductible. Always consider your financial resources when deciding how much disaster protection you need.

Just like homeowners’ insurance and automobile insurance, there are different levels of flood insurance coverage. Your financial resources, mortgage terms, and other factors can play a major role in determining your needs.

Any mortgage may require you to purchase flood insurance. Federally secured loans by Fannie Mae and Freddie Mack have set minimum flood insurance coverage amounts. Under their terms, your flood insurance must be at least enough to satisfy the lowest of these options:

  • Enough coverage¬†to pay the remaining principal balance of your home loan
  • Enough to cover the cost to rebuild your home or 100% insurable value of your property
  • Maximum flood insurance coverage available through NFIP: $250,000 for single-family homes¬†and $500,000 for commercial and municipal structures

The minimum coverage required by your lender may not be enough to cover your losses after a flood, especially if your loan is nearing maturity.

The average price of a single-family home in New Jersey was $500,628 in the first quarter of 2021, and construction costs are rising. It’s important to make sure you have enough flood insurance coverage.

Getting the Coverage You Need

Whether you live along the coast or further inland, it could be costly to skimp on flood insurance. You don’t want to be left holding the bill if the worst happens.

When you consider the heavy cost of rebuilding, getting the maximum flood insurance coverage you can makes sense. Don’t wait for disaster to strike before learning¬†about your flood insurance options.

McMahon Insurance Agency has been serving New Jersey for nearly 100 years, through all sorts of weather. Our flood insurance experts are eager to answer all your questions. Contact us today for a free quote.