Flood insurance isn’t required for all homeowners, just those with federally backed mortgages in high-risk flood areas where there’s at least a 25 percent chance of flooding during a 30-year mortgage. (You know if this is you.)
What does affect your rate?
- FEMA flood maps, officially known as Flood Insurance Rate Maps, identify flood areas and level of risk. Lenders use these maps to determine flood insurance requirements, and FEMA uses them to determine costs for flood insurance.
But even if you live in a low- or medium-risk zone, buying flood insurance still makes a lot of sense. That’s where the National Flood Insurance Program comes in.
The NFIP is backed by the federal government with insight from the Federal Emergency Management Agency (FEMA). The NFIP sets rates nationally, so know this right now: Unlike shopping for homeowners insurance or auto insurance, you won’t be on the hunt for the lowest rates for flood insurance. They’ll be the same regardless of company or agent.
If you’re happy with your current insurer and it offers flood insurance, I recommend you stay put. If you’re looking to move from your current insurer, though, or need to purchase flood insurance from another provider, I recommend either Allstate or MetLife. Both are available nationally and, more importantly, have high financial ratings and equally high customer satisfaction ratings for claims.
NFIP Direct Policies vs. Write Your Own Program
Flood insurance is a little complicated, so bear with me. Regardless of the flood risk in your area, all flood insurance policies lead back to the NFIP. There are just two paths you might take.
If you live in one of the 22,000 areas across the country that has implemented the NFIP’s floodplain-management measures (what is referred to as a “participating community”), you can get flood insurance from the NFIP directly through one of the NFIP Direct Servicing Agents.
If you’re not in a participating area, flood insurance is available through one of 80 private insurers. This is known as the NFIP’s Write Your Own (WYO) program, a partnership between FEMA and the private insurance industry. “The Write Your Own companies issue and service federally backed flood insurance policies under their own names, and they collect the premiums and handle and pay the claims,” says Loretta Worters, vice president of communications at the Insurance Information Institute. “But the federal government retains the responsibility for underwriting the losses.” That means the rates for this program are set nationally, so they are the same regardless of the company or agent — of which there are about 80.
One isn’t necessarily better than the other. NFIP direct insurance provides just that — direct communication with NFIP. “Claim settlement is always a negotiation as opposed to a mathematical formula, so it’s very beneficial to be talking to the decision makers when there’s a claim with NFIP direct,” says Scott Primiano, an Amityville, New York, flood-insurance broker with more than 20 years of experience.
“On the other hand, where the WYOs are better is with general day-to-day service,” he says. “The service platforms are much, much better, and so is the service turnaround time.”
Another benefit to WYO companies is their convenience — you may already have a homeowners, life, or car insurance policy with one of the 80 participating companies. If your current insurance company takes part in the WYO program and you’re happy with its customer service, obtaining flood insurance may be as simple as contacting your agent.
Keep in mind, there are some well-known and well-regarded companies, such as State Farm and Travelers, that have exited the NFIP in recent years. Others work with separate WYO companies to provide flood insurance — Amica, for example, has teamed up with Wright and American Bankers. (This isn’t a bad thing; it just adds one more layer when accessing information or making a claim.)
With all that in mind, there are two WYO flood insurance companies I recommend: Allstate and MetLife.
The Simple Dollar’s Top Picks for Best Flood Insurance Companies
There are a few reasons these two heavy hitters are great options. First, they provide coverage in 35 or more states. We didn’t want to recommend a company that wasn’t available to most readers. That being said, if you’re happy with your local or regional insurer, I’d encourage you to consider it for flood insurance if it’s available. Remember, your flood insurance rates aren’t going to change from provider to provider.
- Likewise, I excluded companies with special eligibility requirements. USAA was among them. The company consistently receives high praise, so if you’re eligible, I’d suggest you consider USAA as well.
Second, I examined insurers’ financial stability. The purpose of flood insurance is to provide policyholders with an economic safety net, so it’s crucial that carriers have enough money to pay out claims. With that in mind, both companies received high financial strength ratings from at least two independent agencies. A.M. Best, which focuses exclusively on insurance, gave them high ratings. In addition, each received at minimum a “very strong” (AA-) rating from Standard & Poor’s or a “high quality” (Aa) rating from Moody’s.
Filing an insurance claim is stressful under the best of circumstances. That’s why I also looked at customer satisfaction. To do so, I consulted J.D. Power’s annual U.S. Property Insurance Claims Study. The 2016 study is based on more than 5,700 responses from homeowners insurance customers who filed a property claim between January 2014 and December 2015. I also examined Consumer Reports’ homeowners insurance ratings, which are based on responses from 9,905 subscribers who filed claims from January 2010 to June 2013. Both Allstate and MetLife received three Power Circle ratings in J.D. Power’s study (about middle of the pack) and very satisfied overall ratings from Consumer Reports (over 80 out of 100), making them solid options.
Why Do You Need Flood Insurance?
If you’re like most people, your greatest asset is your home. So purchasing homeowners insurance that covers you against fire, theft, and vandalism, is a no-brainer. But there’s a common hazard homeowners insurance doesn’t cover: flooding. In fact, a 2016 Insurance Information Institute poll found that only 12 percent of American homeowners had a flood insurance policy.
Even if you don’t live near a river, lake, or ocean, you’re not out of the water.
“When it rains, it floods,” says Primiano. Heavy rains and snowfalls, hurricanes, and spring thaws can also cause flooding. Areas destroyed by wildfires are also at a greater risk for flooding because there’s no longer vegetation to absorb the water. Similarly, new construction and development can change natural drainage paths, thereby creating additional flood risks.
“We’ve had two really big floods in the past four years that hit areas that have never flooded before,” says Amy Bach, a co-founder and the executive director of United Policyholders, referencing recent floods in South Carolina and Baton Rouge, Louisiana. “So thousands and thousands of people found themselves without an economic safety net.”
Floods are the most common natural disaster in the United States.
Flooding is so common that people outside of high-risk flood areas file more than 20 percent of all NFIP flood insurance claims and receive a third of federal disaster assistance for flooding. And in case you thought the latter would bail you out, know that federal disaster assistance generally comes in the form of a loan to be repaid with interest and is only available if the president formally declares a disaster. (You should also note that flood insurance policies generally have 30-day waiting periods to prevent consumers from purchasing policies right before storms roll in. This includes both of our top picks.)
Why You Should Consider Excess Flood Insurance
The standard NFIP policy only covers up to $250,000 on one- to four-family residential properties and up to $100,000 for your home’s contents. Unlike homeowners policies, NFIP policies don’t include additional living expenses. “Let’s say your home has been totally destroyed and you have no place to live. Under a general homeowners policy, you have what’s called additional living expenses, and that will pay for your hotel and food up to certain limits,” Worters says. “But that’s not included for a basic policy through the NFIP. So, if your house burns down, you have additional living expenses. But if your house floods, no.”
If your house costs more than $250,000 to rebuild, I recommend you research excess flood insurance through your private insurance company. (Both my top picks, Allstate and MetLife, offer excess flood insurance options on top of their NFIP-backed flood insurance policies.)
With excess flood insurance, “You can buy limits up to $5 million to rebuild your properties, above NFIP limits. You can also get replacement contents, which is valued up to $2 million in most states,” Worters says. “And there’s also money for additional living expenses, so it’s a much more comprehensive policy than an NFIP policy would be.”
The Bottom Line
Regardless of where you live, flood insurance probably makes sense — even those in low- to moderate-risk flood areas are still at risk. NFIP insurance is the most barebones option to protect your home from flood damage, and is available either directly to you (if you live in a participating community) or through one of 80 private insurers. If the cost to rebuild your home exceeds the program’s limits, though, I recommend looking into excess flood insurance as well.