Flood Insurance
Legal Real Estate

An Overview of Flood Insurance

A flood insurance policy protects the building and contents of your property from damage caused by flooding. It’s required by most lenders for government-backed mortgages.

The NFIP offers building and content coverage, including relocation costs. 


Numerous factors influence how much flood insurance costs. A home’s location is a significant consideration, as are its proximity to bodies of water and its elevation. A policy also considers whether a building is new or old and how much coverage a homeowner wants to purchase. Some policies cover just buildings, while others include personal belongings.

The National Flood Insurance Program (NFIP) uses Risk Rating 2.0 to calculate rates based on a property’s risks. This means a property’s insurance rate could differ from its neighbor’s. Additionally, a property’s foundation type, construction materials, age, and other features can affect a policy’s price.

Fortunately, homeowners in many areas can still get affordable flood insurance by purchasing a Preferred Risk Policy from NFIP. This type of policy offers building and content coverage for a lower price than standard policies.

Those living in low-risk zones can also benefit from a lower premium by participating in community-based mitigation activities, such as elevating utilities or filling in a basement. These projects can help reduce damage in future flooding events.


It is a common misconception that typical renters, home and condo insurance does not cover flood damage. Instead, a separate flood policy is needed. The National Flood Insurance Program provides several options, including Preferred Risk Policies that offer building and contents coverage for homeowners in moderate-to-low-risk areas at a lower cost.

Flood insurance in Michigan is available for owners of single-family homes, mobile homes, multi-family buildings, and commercial properties. It is also available for condominium associations that own residential units.

The expense of replacing or repairing buildings and personal items damaged or destroyed by floodwaters is covered by insurance. The coverage is based on two methods of valuation: actual cash value (ACV) and replacement cost value (RCV). The RCV method is used for the building, while the ACV is applied to personal property.

All property owners with mortgages from federally regulated or insured lenders are obliged by law to carry flood insurance in high-risk FEMA-mapped floodplains. In moderate-to-low-risk areas, the threat of flooding is reduced, but it’s not eliminated. These communities still submit over 20% of NFIP claims and receive one-third of disaster assistance funds for flooding.

Having a flood insurance policy is the best way to protect your assets from the costs of flooding fully. Without insurance, the only relief from flood losses is through no-interest or low-interest loans from the government — and that money has to be paid back.


A flood deductible is the amount a policyholder must pay before the insurance company begins paying on a claim. It is an integral part of a flood insurance policy because it helps keep premiums low. A flood deductible is generally equal to the policyholder’s current home value minus the building and contents coverage limit, which is usually set at the insurable value of the property.

Flooding is generally not covered by ordinary homeowners’ insurance. Still, it may provide some protection if the homeowner lives in an area prone to storms or has experienced recent flooding from a burst pipe or sump pump failure. A government-backed mortgage (such as a VA, FHA, or USDA) may require flood insurance.

For most homeowners, determining the correct flood insurance coverage is a complex process that includes calculating the cost to rebuild the property and assessing the value of belongings. An insurance agent or an online tool can help. In addition, the National Flood Insurance Program offers a variety of options for homeowners to choose from. 


As with any property insurance policy, there are several things that flood coverage does not cover. Some of these are not particularly surprising, but others might come as a surprise to some homeowners or business owners considering the need for such coverage.

For example, currency and precious metals are generally not covered under most policies. Also, items in areas below what is typically the first floor of a dwelling, such as crawl spaces and basements, have limited protection because of their high risk for flood damage. This is why some people purchase a separate flood policy for these areas of their homes or businesses.

Water exclusion clauses are a standard feature in most property insurance contracts and eliminate coverage for damage caused by flooding, tidal waves, tsunamis, or other types of water events that are outside the normal scope of the policy. However, such water damage from a sudden mishap inside the home, like a gushing toilet or burst pipe, would usually be covered under the hazard portion of most policies.

If your structure is located in an area deemed to be in a high-risk flood zone, you may be required by your lender to have a flood insurance policy. You can also qualify for a Preferred Risk Policy through the National Flood Insurance Program, which offers standard insurance in moderate-to-low-risk zones at lower rates.


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