Denis Doulgeropoulos

Your Financial Professional & Insurance Agent

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Flood Insurance: Be Prepared for Rising Waters and Changing Rates

In most cases, water damage to your home resulting from a leaking pipe, a broken dishwasher, or a hole in your roof is covered by homeowners insurance (up to your policy limits). Flood damage, however, is excluded from most homeowner policies and requires a separate flood insurance policy. The water must cover at least two acres or affect two properties in order to be considered a flood for insurance purposes. Before flood insurance takes effect, there is typically a 30-day waiting period, so property owners shouldn’t wait until there is an imminent threat to buy flood insurance.  

house in water

Ninety percent of natural disasters in the United States involve flooding, causing billions of dollars in annual losses.1 Most flood coverage is provided under the National Flood Insurance Program (NFIP). Flood insurance policyholders should be aware that the NFIP has implemented a new risk assessment model, which is expected to affect premiums. If you want to own a coastal or waterfront home, higher insurance costs may pose a problem.

Accounting for Risk

Flood insurance is required by mortgage lenders for homes located in high-risk areas. Consider coverage even if you own your home outright or do not live in a flood-prone area. About 20% of flood insurance claims are in low- to moderate-risk areas.2

Based on rainfall, topography, tidal surges, flood control measures, and other variables, the Federal Emergency Management Agency (FEMA) determines the level of risk in your community. Flood insurance premiums were previously based on the level of risk indicated on FEMA’s flood-hazard maps, as well as other factors such as building elevation and age. Generally, all properties in a particular flood zone were rated for the same level of risk.


Expected Rate Changes with Risk Rating 2.0

Share of flood policyholders who will see their monthly premiums:

Decrease                                             23%

Increase up to $10 per month           66%

Increase $10 to $20                             7%

Increase more than $20                      4%

Source: Federal Emergency Management Agency, 2021


As of October 1, 2021, a new system called Risk Rating 2.0 will provide a more detailed picture of a property’s risk, using a wider variety of data including the distance to the water threat and the cost to rebuild a house. The system will make it easier for homeowners to understand the actual risk to their homes, which will allow them to set insurance premiums accordingly. This is expected to raise premiums for higher-valued and/or higher-risk homes, while lowering them for lower-valued and/or lower-risk homes. The new pricing will take effect on April 1, 2022. In order to ease the transition for owners of vulnerable, high-valued homes, annual increases are capped at 18% until the full rate is reached.