Homeowners insurance with flood coverage is rare

Homeowners insurance policies with flood coverage are hard to find. A consumer can pretty well assume that any standard policies he considers will not cover flood damage. Flooding is such a devastating kind of damage—not only ruining contents but fostering mold that requires a damaged home to be taken back to its studs.

The flooding we are talking about is from an external source—a river rising out of its banks, a sea that has been blown ashore by hurricane winds, torrential rainfall that has gathered and swirled along a street to dump itself in a basement. Water that touches the ground before it enters a home will not trigger a homeowners insurance claim.

Insurers figured out that if they insured many homes for this kind of grievous flooding, they would be exposing themselves to many expensive claims. Their response was to raise premiums for flood policies so high that most people chose to forego the coverage—even homeowners whose properties were located in flood plains.

Insurers weren’t being selfish when they jacked up rates for the coverage. They were being realistic. If they had to pay out all their money after a widespread flood, they would have to close their doors. They chose to operate their agencies with the clear intent of staying in business—and many, many homeowner policyholders are glad they did.

Congress stepped in several decades ago, offering subsidized insurance through the National Flood Insurance Program. The NFIP’s standard flood insurance coverage is $250,000 for the structure and $100,000 for contents. Structures built in flood zones must have flooding coverage, and home builders are discouraged from building in such areas.

A few commercial insurers have non-standard homeowners insurance policies with flood coverage for customers who insist on it—and can afford it. The more affordable option is to buy a NFIP policy through a participating insurer. Because the insurance is backed by the federal government, premiums for it shouldn’t vary much from company to company.