Flood Insurance 101: What to Know Before the Next Storm, Part 2

By Colin E. Nass, CFP^®, AEP^®, RICP^®, Director, Financial Planning

Last month we detailed what flood insurance is, what it covers and who needs it. In this final installment of our two-part series, we explain the price tag associated with this type of insurance, how this coverage works and how the different kinds of flood insurance compare.

The Cost

As with any type of insurance, higher risk means higher premiums. According to NerdWallet the national average cost for homeowners is $899 annually (about $75 a month), while rental property flood insurance is $500 annually.¹ Federal law caps annual premium increases at 18 percent a year.¹

Climate change is reshaping flood risk. The Federal Emergency Management Agency (FEMA) maps often underestimate inland flooding, especially in the Southeast and Central Southwest. In fact, 25 percent of National Flood Insurance Program (NFIP) claims are outside of the high-risk zone.²

To better reflect actual risk, FEMA introduced Risk Rating 2.0, which includes extra variables for each zone such as how much it costs to rebuild and the current flood frequency.

Other risk factors used in rating include:

Proximity to a river or other flood source
The height of the first floor
Age of the structure
Construction type
Overall condition of the property

Preparing to File a Claim

While some policyholders saw rate reductions, others have experienced annual increases of up to 18 percent for several years in a row. It’s estimated that NFIP policies won’t reach full risk-based pricing until 2037.¹

You can lower the premium price tag with a higher deductible as well as taking steps to reduce flood damage. These measures include:

Installing flood vents on exterior walls that allow water to flow between the outside and the inside of your foundation, equalizing the pressure to prevent a structure collapse.
Filling in the basement or crawlspace.
Raising the utilities onto an elevated platform or moving them to the attic.
Improving the property’s drainage.
Installing flood barriers.
Bundling with other insurance policies.
Submitting an elevation certificate, which may lower your rate based on the elevation of the first floor.

Private Insurance vs. NFIP

Since 2020, the private flood insurance market has grown by approximately 20 percent annually while the NFIP market has declined.³Several factors contribute to this trend.

Private insurers often offer more competitive pricing, higher coverage limits, and customized policies that better meet individual needs. In contrast, the NFIP has a residential claim limit of $250,000, which can leave many properties underinsured.

Regulatory changes have made it easier for homeowners to switch to private flood insurance. Additionally, concerns about federal funding cuts and government shutdowns have led many homeowners to seek more stable options in the private sector.

To ensure a smooth claims process, store your insurance company’s name, contact information, and policy number in a secure location that is unlikely to be affected by flooding.

In addition, keep photos of your appliances along with a record of their model and serial numbers. It's also important to photograph items such as carpet, flooring, wallpaper, and drapes before any damage occurs. If possible, retain swatches or samples of these materials to help verify their quality and value during the claims process.

Once it is safe to reenter your home, document the damage thoroughly before filing a claim. Take clear photos and videos of all affected areas and items, including those you plan to discard. Be sure to capture:

Structural damage
Standing floodwater levels (inside and outside)
Damaged appliances, furniture, and personal belongings

Do this before removing anything or making repairs, as proper documentation is essential for your claim.

Flood insurance offers essential protection, whether through the NFIP or a private insurer. With climate change increasing the frequency and severity of flood events, and with flood risks extending beyond high-risk zones, it’s more important than ever to assess your vulnerability and explore your coverage options.

By taking proactive steps, such as documenting your property, understanding your flood zone, and comparing insurance providers, you can ensure you're better equipped to recover quickly and confidently when disaster strikes.

The information contained herein is for informational purposes only. The information contained herein does not constitute any financial, insurance, investment, legal, or tax advice. MMBB is not liable for any success or failure that is directly or indirectly related to the use of the information contained herein.