The Average Cost Of Flood Insurance

Among the many (many) expensive elements of owning a home is figuring out the necessary insurance coverage to have. With homeowners insurance premiums rising across the country, and many insurance companies simply refusing to cover certain things anymore, it can be increasingly difficult to find the right coverage for your needs. According to data from Forbes Advisor, the average homeowners insurance costs for $200,000 of dwelling coverage is $1,150 a year, while policies for $750,000 in coverage average $3,068 a year. These insurance costs can and do vary depending on what state you live in, and even what city or geographic region your home is in.

According to U.S. News & World Report, homeowners insurance rates have jumped almost 22% since 2020. On top of this, insurance companies have been increasingly separating out many specific coverages in the wake of increased climate change-fueled natural disasters. This can make knowing what coverage to include in your home insurance policy more complicated to understand and more expensive. In many cases, this confusion can also leave unsuspecting homeowners with a lack of coverage in the wake of natural disasters. This can be financially disastrous, considering the post- pandemic increase in not only labor costs, but also in home rebuild and/or repair materials like lumber and building supplies.

That said, while you might not think you need something like flood insurance, it's important to recognize just how much flood-related events have increased across the U.S. in recent years. Let's dive into what to know about flood insurance.

As said, it can be difficult to know just how much homeowners insurance coverage you might need. The situation is made even more complicated with the increasing prevalence of add-on coverage, also sometimes called endorsements. The most important thing to know about these add-ons is that they can include things like fire and flood coverage. As insurance companies find more creative ways to offer less coverage while still charging more, many have gone to only offering these kinds of specific coverages a la cart. These add-on coverages must be initiated by the consumer, and aren't part of your regular homeowners insurance coverage. This means consumers must proactively decide to purchase add-on coverages like flood insurance, which cost even more than most people's already expensive insurance premiums.

According to August 31, 2024, data from the National Flood Insurance Program (NFIP), the current average annual cost of flood insurance for single-family homes is $820. However, it's important to realize this is not necessarily the cost for all consumer coverage. Consumers can choose to get their flood coverage through the NFIP or through a private insurance company, which can and will change your potential flood insurance costs. Another thing to keep in mind is that the NFIP calculates both current costs as well as risk-based costs. What this means is that for policyholders with a current cost premium that falls below the risk-based cost, they could face increases in their premiums known as a "glide path" to reach the full amount. However, by law, most policyholders' rates can't increase by more than 18% per year.

While National Flood Insurance Program coverage can be more affordable than private policies, there are some important considerations when deciding on flood coverage for your home. First, NFIP isn't available to all Americans. While 23,000 U.S. communities participate in the federal program, having access to NFIP requires communities to not only adopt floodplain management measures but also enforce them in order to meet minimum regulation requirements. This means that small towns and rural areas (generally with less than 5,000 residents) are more likely to not participate in NFIP. Unfortunately, this also means that communities that fail to participate could miss out on financial and federal disaster assistance in the wake of a weather event.

Another thing to keep in mind about NFIP coverage is that it can be limited. For instance, NFIP coverage doesn't account for non-fixed property, such as trailers, campers, converted buses, or vans. Plus, NFIP coverage caps at $250,000 for the actual building structure coverage and $100,000 for contents coverage. These limits can leave many falling short of the actual value of the flood damage to their home under NFIP coverage.

However, it's also important to remember that private insurance companies can not only deny a request for coverage if they deem a homeowner's area too risky, but they can also drop coverage at any time and/or increase premium rates at higher rates than the NFIP. For these reasons, make sure to research the different flood coverage options available to you in your geographic area (and maybe even consider avoiding buying a home in certain American cities with higher risk altogether).