Do I Need Flood Insurance? When It Is Required, When It Is Optional and How to Decide

In simple terms, if you have a federally backed or regulated mortgage and a home in a high-risk flood zone (i.e. a zone beginning with the letter A or V) you generally will have to have flood insurance. There are some other, rarer situations — being the beneficiary of disaster aid for flood damage, condo association regulations — in which one might be required to hold flood insurance, but most homeowners required to buy it likely have a mortgage in a high-risk area.

Those who have paid off their mortgage or who live in a low-risk flood zone (i.e. a zone beginning with the letter X, B or C) are not required to get flood insurance. But that doesn't mean they aren't at risk of having flood damage.

There is no law that requires a homeowner to buy flood insurance just because they own a home; the requirement comes from having a mortgage. If a mortgage is federally regulated or backed and you live in a high-risk flood zone, you must buy flood insurance. Even if a loan is not federally regulated or backed, many lenders set their own flood rules, so it may be a functional requirement for your mortgage even if it's not required by federal law.

The Flood Disaster Protection Act of 1973 and the National Flood Insurance Reform Act of 1994 mandate flood insurance for federally-linked loans on buildings in Special Flood Hazard Areas (i.e. high-risk flood areas). If you are taking out a loan for your home, your lender must notify you in writing that you are in one of these hazard areas, and you must hold the flood insurance policy for the life of the loan. In fact, if you let your flood insurance policy lapse, the law allows the lender to buy coverage for you and bill you.

You'll be required to buy coverage equal to either the amount of the loan (excluding land) or the NFIP maximum limits of $250,000 in building coverage (whichever is less).

The requirement to buy flood insurance exists to reduce the cost burden of uninsured flood damages that could fall on taxpayers through federal disaster aid.

The law can apply to loans and lenders at three different touchpoints:

• A federally regulated lender or a federal program makes a loan in a high-risk flood area. This is the standard requirement.
• If a loan is purchased by Fannie Mae or Freddie Mac in the secondary market, or if the loan is expected to be resold to Fannie Mae. These are government sponsored enterprises (GSEs) that can't buy loans in hazard areas unless the home has flood insurance, so it will often be a requirement in anticipation of these GSEs buying the loans.
• If flood maps change. FEMA could redraw its map and put your home in a high-risk zone.

A loan that is not federally regulated or backed falls outside this rule, but many lenders and investors set their own flood insurance rules so make sure to check documents from your lender such as a "Notice of Special Flood Hazards" or your loan approval or commitment letter.

Lenders have the right to require flood insurance in lower-risk zones even if federal law doesn't mandate it. This is to protect the lender's investment in your home against the losses due to flood damage, and the risk that those losses could result in your financial insecurity. Look at the mortgage or deed of trust you sign at closing and read the section on property insurance; standard contracts will have a section detailing what the lender requires in flood insurance and its rights to alter that requirement during the course of the loan.

The exact amount that lenders do this is unclear: MoneyGeek looked into the NFIP's data flagging mandatory flood purchases in low and high-risk zones and found that its data is unreliable. For example, mandatory purchase was only flagged in 19% of high-risk AE zones; unlikely to be the case in reality.

If your lender requires it and you don't buy it, the lender can "force-place" a policy and bill you for it. A force-place policy is usually more expensive than a traditional policy, so if you agree that your home is correctly categorized as in a high-risk flood area, you should seek a traditional policy before it's forced upon you.

Outside of federal requirements, there are some other situations in which a homeowner may need to buy flood insurance: after receiving federal disaster aid and condo association rules.

If you're a previous recipient of federal help for flood damage in a Special Flood Hazard Area, you must buy and keep flood insurance even if you don't have a mortgage. This duty will also apply to later owners of the home, so the obligation can be inherited.

Condo owners may also be subject to external requirements. A condo association may require you to buy flood insurance even if your lender doesn't require it and if the condo isn't in a Special Flood Hazard Area. However these two cases are unusual and won't apply to most homeowners.

If you are going to have a mortgage on a home in a high-risk zone (a zone that starts with the letter A or V) you are going to need to buy flood insurance. Lower-risk flood zones (which mostly are categorized as Zone X, though there are some legacy areas labeled B or C) do not require flood insurance even if you have a federally backed mortgage — though that doesn't mean there's no risk of flood damage.

You won't have any federal requirement to buy flood insurance under any circumstances for a home in a Zone X flood zone. This doesn't mean that a lender can't require it, just that they won't be required by law to mandate you purchase it.

Zone X is the current label for areas outside of FEMA's high-risk zones, also called Special Flood Hazard Areas. In the past, these zones could have been labeled Zone B or Zone C, but those zones only make up about 4% of all lower-risk areas so most homeowners in a low-risk zone are likely to be designated as Zone X.

This doesn't mean there's no risk in those zones. MoneyGeek found about 32% of NFIP flood insurance claims come from these zones, and their median cost of $938 per year is only a few hundred dollars less than the median in "A" zones. Homeowners with a history of flooding, on low ground, near water or with a basement or crawl space should consider buying a policy even if it isn't required.

If you're in Zone AE and you have a federally backed or regulated mortgage, flood insurance is required. If you own your home outright, a policy isn't required but you face real flood risks compared to other areas. And regardless of whether your mortgage is federally backed or regulated, there is a chance your lender asks you to buy flood insurance as a condition for the loan.

AE Zones are designated as high-risk areas by FEMA with at least a 1% chance of flooding in any given year. The median cost of a policy is $1,247 per year and 41% of all NFIP policyholders are in these zones.

All of these zones are Special Flood Hazard Areas, so anyone with a federally backed or regulated mortgage will be required to buy flood insurance. Anyone without a mortgage won't be required to buy it, but they are exposing themselves to heightened flood damage risk, especially in zones beginning with "V".

Zones A, AH, AO and A99 are high-risk areas, but not as risky as Zone AE. Combined, they make up 12% of NFIP policies. They are still considered to have a 1% risk of flooding in a given year, but the risk is considered mitigated due to the likelihood that the flooding is shallow or because the area has committed to a federal flood-control system like a levee or dam. As a result, the median price is $922 per year, actually lower than Zone X.

Homes in Zone V and VE are extreme cases that are exposed to not just flooding but wave risk. They represent less than 1% of all NFIP policies but have a median cost of $1,775 per year, much higher than other zones.

If you don't know your flood zone, use FEMA's Flood Map Service Center and enter your address. If you're in the process of buying a home, your lender or title company will run a flood determination at closing or an insurance agent could look it up for you. Note that it's not only your flood zone that determines your price; your home characteristics affect your flood rate and a document like an elevation certificate that shows how high the home sits can change your rate.

Federal government requirements are the main factor determining who needs flood insurance, and there is no state law requiring anyone to buy flood insurance. In some coastal states there are very specific situations in which non-mortgage homeowners may have to buy flood insurance, but they're rare and likely to apply to very few people. To take three major states as an example, Florida may require you to buy flood insurance if you have wind insurance through its state-sponsored insurer, Texas if you have wind insurance on a highly risky property, and California not at all.

• Does the state of Florida ever require you to buy flood insurance? An outright owner is required only if their wind coverage is through Citizens. Citizens homes in a high-risk flood zone must carry flood insurance, and outside one the rule applies to all policies from Jan. 1, 2027, with condo unit-owner, tenant and no-wind policies exempt. Outside a high-risk zone it already applies to dwellings valued at $400,000 or more.
• Does the state of Texas ever require you to buy flood insurance? An outright owner is required only if the home is insured through TWIA and sits in a V zone, and was built, altered, remodeled or enlarged on or after Sept. 1, 2009, in which case TWIA requires proof of flood insurance, though not for repairs. That's a small group, since under 1% of Texas NFIP policies are in V zones.
• Does the state of California ever require you to buy flood insurance? No one is required by a California rule, so an outright owner has no requirement. The FAIR Plan and homeowners policies exclude flood, which leaves you uncovered but not in violation.

When you aren't mandated to buy flood insurance, the question of whether or not to buy becomes a risk analysis rather than a legal question. Potential buyers should know that their homeowners insurance does not cover flood damage, that flood damage risk is not limited to high-risk hazard areas and that disaster aid is not a substitute for insurance.

If water collects near your home, the home is at low elevation or near water and/or has flooded before, you should seriously consider buying flood insurance, especially if you couldn't pay a large repair bill without a loan. But if your home is located well above surrounding ground, is far from water and if you have enough savings to cover the small likelihood of a minor loss, it's a reasonable risk calculation to consider skipping flood insurance.

Ultimately, getting a flood insurance quote and weighing it against your peace of mind with or without the policy is the best way to determine whether the cost is worth the value it provides.

If you're thinking of foregoing flood insurance because you already have home insurance: reconsider. Home insurance policies exclude damages caused by flood and even damages that might be similar in nature such as those from a mudslide or debris flow.

Confusion among buyers may arise because homeowners insurance does cover some types of water damage, such as a burst pipe or a severe combination of wind and rain. But flooding damage, where water rises and flows into the property, is not covered. Homeowners should also note that water backup damage, where water flows back into your home through sewers or drains, is typically not part of a standard home insurance policy, but can usually be added with an endorsement from the same insurer.

Whereas a high-risk zone is categorized as having a 1% chance of flood damage in any given year, or 26% over the life of a 30-year mortgage, lower-risk zones are estimated by FEMA as having a 0.2% to 1% chance in any given year, or 6% to 26% over the course of that same mortgage.

These risks sound relatively low on paper, even for high-risk zones, but remember that just one major flood event could cost thousands or hundreds of thousands of dollars.

The risk probabilities are also estimates. About one-third of NFIP flood claims come from outside lower-risk areas. Low-risk flood zones represent about 46% of policies and 32% of claims. In other words, they are proportionately lower-risk than the high-risk areas, but homeowners in these areas still make a substantial share of all flood claims.

Not reliably, as FEMA's grants require a presidential disaster declaration, which not many floods receive. Conversely, a flood insurance claim is paid whether or not a disaster declaration is made. The limits to how much aid will be provided are also much lower than the maximum limits of an NFIP flood insurance policy, which is the amount selected by most flood insurance buyers.

When considering how much flood insurance you need to buy, you should consider two factors: how much your lender requires (if you have a mortgage) and how much you need to cover the cost of rebuilding your home.

• How much your lender requires you to buy: If you are required to buy flood insurance because you have a mortgage, you'll be required to buy a policy with limits that match a) the amount of the loan (excluding land) or b) $250,000 in building coverage. Between those two numbers, whichever is lower will be your requirement.
• How much you need to cover the cost of rebuilding your home: If you aren't required to buy flood insurance, you should still consider buying a policy and when you do, buying an appropriate amount. As with home insurance, MoneyGeek recommends buying enough insurance to cover the cost of rebuilding your home, called the replacement cost. This is not the same as the property value of your home — what it would cost if you sold it — which includes the value of your home and the land it's on above and beyond rebuilding costs.

If you're required by your mortgage lender, you'll be buying flood insurance at your purchase of the home along with homeowners insurance. For those who are buying flood insurance even though they're not required to, be sure to purchase the policy sufficiently far in advance to avoid any risk. NFIP flood insurance policies only take effect 30 days after purchase, so buying a policy just before storm season may leave you without coverage for a near-term event. Private flood insurance may have shorter wait times but is less proven than NFIP flood insurance, which makes up the majority of the market.