How Much Flood Insurance Do I Need?
If you live in a Special Flood Hazard Area (SFHAs) and have a mortgage on your home , you’ll likely be required to purchase flood insurance. You’ll want to make sure you have enough coverage to rebuild your home in the event of a total loss.
Minimum Requirements
Your lender will typically require that you have enough coverage to match the amount of the mortgage, up to a maximum of $250,000. The reason behind the maximum is that the NFIP will not provide more than $250,000 in dwelling (home) coverage. Unfortunately, if the flood damage to your home exceeds $250,000, you will have to pay that expense out of your own pocket.
Private flood insurance offers higher limits, up to $4,000,000. If you live in a high-risk area, or want to ensure that you don’t have to pay out of pocket for flood damage, it would be smart to cover the cost to rebuild the structure.
Replacement Cost vs. Market Value
To be adequately protected, you should maintain enough coverage to rebuild your home from the ground up (replacement cost), regardless of minimum requirements.
While people often confuse their home’s market value with its replacement cost, the two are not the same. Not grasping the difference could lead to over or underinsuring your property, either of which could cost you in the long run. So, what is the difference?
Market value is the price you could sell your home for in the current real estate market. It is determined not only by the size and quality of your home, but also the land it sits on, and perhaps most importantly, location, location, location!
Replacement cost is the amount of money it would take to rebuild your home in today’s market at its current location using similar materials, construction techniques, and design features. In general, it is calculated by adding up the cost of materials, labor, and fees for both professional services and any necessary permits. Factors that affect your home’s replacement cost include its size, age, and the quality of the materials and finishes used in its construction. It does not account for the value of land your home sits on, or the appeal of the neighborhood it is located in.
How much flood insurance coverage do I need? If you experience flood damage, your goal should be to return your home and contents to the state they were in prior to the flood. Therefore, coverage should equal The amount it would cost to rebuild your home (replacement cost) and the amount it would cost to replace your belongings.
How do I figure out my replacement cost? Since your insurance policy is intended to return your home to the state it was in prior to a covered loss, an independent appraisal is usually the most accurate method for determining a home’s replacement cost, but could cost a few hundred dollars. There are also replacement cost calculators available online that you can use to assess your home’s replacement cost yourself. These calculators take several important factors into consideration, such as:
· Age of your home
· Square footage
· Roofing material
· Number of stories
· Architectural features foundation type
· Quality of fixtures and finishes
Weighing in Economic Conditions
Although market value and replacement cost are different, both are affected by economic conditions, including inflation. A growing demand for housing can impact the market value of your home, while an increasing need for labor and materials coupled with dwindling supply (think COVID fueled lumber shortage of 2021.) could significantly alter its replacement cost. Since market conditions can cause your home’s estimated replacement cost to fluctuate, it is important for review your insurance policies regularly and re-evaluate to make sure you still have adequate coverage.
NFIP vs Private Flood Insurance
The National Flood Insurance Program offers a maximum of $250,000 replacement value for a residential building, and $100,000 in contents coverage. If you believe you need more coverage we recommend you opt for a private flood insurance policy.
If you’re unsure if you need flood insurance, use our Flood Zone Lookup tool to find out if you’re in a flood zone. Even if you’re just outside of one, you may want to get coverage. No Flood Zone does not equate to No Risk! Every situation is different, so if you need help, give our Flood Experts a call at 866-503-5663, or Get a Quote online.
