Surprising Facts About Flood Insurance

The real facts about the National Flood Insurance Program surprise even the most diligent homeowner. Don’t fall for these myths.

Floods happen nearly everywhere in the United States, so they cause the most losses. Image: Susie Shapira/FEMA

Myth #1: Hurricanes, not floods, are the No. 1 natural disaster and cause the biggest economic losses in the United States.

Hurricanes grab the headlines, but because floods happen in virtually every part of the country, they cause more losses than any other type of natural disaster. Homeowners insurance doesn’t cover floods. Only flood insurance covers flood damage to your home.

What causes floods?

  • Rising rivers
  • Storms
  • Early snowmelts
  • Manmade problems from the construction of roads, shopping malls, homes, and industrial complexes
  • Hurricanes

Myth #2: Everyone who lives in a flood zone has to buy flood insurance.

Nope. You must buy flood insurance only if you meet all three of these criteria:

  • You buy a home in a special flood hazard area where there’s a 1% chance of flooding in any year.
  • You buy or refinance your home using a loan from a federally regulated financial institution, or a Fannie Mae- or Freddie Mac-guaranteed loan.

If you don’t meet these three requirements, no one will make you buy flood insurance. 

About 5.6 million Americans living in the more than 20,500 communities that participate in the flood insurance program buy flood insurance.

Myth #3: Flood insurance is always expensive.

Flood insurance through the National Flood Insurance Program is sometimes expensive and sometimes cheap, depending on your home’s value, location, and height off the ground, as well as the value of your possessions. FEMA’s FloodSmart site includes a sampling of policy rates. Some examples:

  • It can cost more than $8,000 a year if you buy the highest possible coverage of $250,000 for property and $100,000 for contents for a second home in the highest-risk areas. FEMA defines high-risk as having “at least a 1 in 4 chance of flooding during a 30-year mortgage.”
  • It can cost as little as $129 a year for $20,000 of rebuilding coverage and $8,000 in contents for your main home, if it’s in a low-risk area.

Premiums vary a lot based on where you live. If you want to buy $250,000 of building coverage and $100,000 of contents coverage for your main home, you’d pay about:

  • $7,173 in a high-risk coastal area.
  • $3,289 in a high-risk area.
  • $1,798 a year in a low-to-moderate-risk area.

Myth #4: Taxpayers are footing the bill for federal flood insurance.

The NFIP doesn’t spend any tax dollars. The government sets the premium rates high enough to cover flood insurance claims and operating expenses in an average historical loss year. The program can borrow money from the U.S. Treasury when losses are heavy, but has to pay those loans back with interest.

To make sure it stays solvent, the NFIP is:

  • Phasing out subsidies for second and vacation homes and homeowners..
  • Improved the accuracy of flood maps.

Myth #5: Companies sell flood insurance, so the government doesn’t need to.

Private flood insurance is very expensive and only a handful of companies offer excess flood insurance to homeowners with whose homes are valued at more than $250,000. The National Flood Insurance Program is the only program offering low- and middle-income homeowners flood insurance. If it disappeared, those homeowners wouldn’t have another option.

Myth #6: I don’t own a beach house. Those people use flood insurance most.

Many people associate beachfront property with flooding, but the vast majority of the properties insured through the National Flood Insurance Program are inland. Many beach areas are off limits to the National Flood Insurance Program because the Coastal Barrier Resources Act bans purchase of flood insurance from the NFIP — but not the private market — in order to meet the flood insurance requirement and develop those areas.

Myth #7: The flood insurance program subsidizes beachfront homeowners.

Five of the top-12 states with the most number of years in which claims exceeded premiums are in the Midwest, from 1978-2007. Many of the states hardest hit by floods are nowhere near the beach:

  • Illinois
  • Iowa
  • Michigan
  • Ohio 
  • North Dakota