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So you want to buy a house in a floodplain: Understanding insurance implications

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By Susan Meyer Info icon
Updated April 25, 2024
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Susan Meyer

Senior Editorial Manager

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  • Licensed Insurance Agent — Property and Casualty

Susan is a licensed insurance agent and has worked as a writer and editor for over 10 years across a number of industries. She has worked at The Zebr…

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Ross Martin

Insurance Writer

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  • 4+ years in the Insurance Industry

Ross joined The Zebra as a writer and researcher in 2019. He specializes in writing insurance content to help shoppers make informed decisions.

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  1. Floodplains
  2. Flood zones
  3. Flood Factor
  4. Insurance requirements
  5. Calculating flood insurance rates

Flood risks are rising

If you live in a floodplain or are considering buying a home in one, you aren’t alone. Over 15 million U.S. homes are thought to be at risk of flooding, which is 70% higher than what FEMA estimates.[1] 

Flooding is the most common and costly natural disaster in the United States and the risk of flooding is only increasing due to climate change (due to rising sea levels and changing precipitation patterns).[2]

But what does “at risk for a flood” really mean? What are floodplains, flood zones and flood factors and how do they affect your need to get flood insurance? Read on to learn the ins and outs of flood risk terminology. 

What are floodplains?

FEMA defines a floodplain as any land susceptible to being inundated by floodwaters from any source.[3] Floodplains can be coastal regions easily impacted by storm surges or areas adjacent to rivers, streams, lakes or other bodies of water that are prone to flooding.

These regions play a critical role in the natural management of flood waters but also pose risks to properties and lives. Understanding the different types of flood plains and their implications for insurance is essential for homeowners and businesses in these areas.

Types of floodplains

Flood plains can be categorized as a floodway, 100-year floodplain, or 500-year floodplane based on their likelihood of flooding. These are arranged from greatest likelihood of flooding first:

100-year floodplain myth

It’s a common misconception that a 100-year floodplain floods once every 100 years. In reality, it has a 1% annual chance of flooding in any given year, which translates to a 26% chance of being flooded over 30 years (the average mortgage length).

  1. Floodway: The channel of a river or other watercourse and adjacent land areas that must be kept free of encroachment to allow for the passage of the base flood without increasing the water levels. During a flood, the floodway functions as part of the waterway.
  2. 100-year floodplain: These are areas with a 1% chance of flooding annually. These regions are often referred to as areas with a high risk of flooding. They are also labeled as Special Flood Hazard Areas (SFHA) by the Federal Emergency Management Agency (FEMA).
  3. 500-year gloodplain: Areas with a 0.2% chance of flooding annually, indicating a moderate risk of flooding. These areas are less likely to experience floods annually compared to the 100-year flood plains but still carry significant risk.

What are flood zones?

When dealing with insurance companies, you are more likely to hear the term flood zone used to categorize flood risk for properties.

Essentially, it is the same as floodplains, but a more nuanced look at categorizing risk. On FEMA flood maps, flood zones are labeled with letters B, C, X, A or V. Here’s essentially how those break down:

  • Moderate flood risks: Low-to-moderate-risk flood zones are marked with letters B, C or X. The risk of flooding here usually does not require flood insurance. These correspond to a 500-year flood plain or .2% chance of flooding.
  • High flood risk: Zones that begin with an A or V on FEMA flood maps face a high risk of flooding. These correspond to a 100-year flood plain or a 1% chance of flooding.

You can find out what type of flood zone your home is in through FEMA.[4]

What is your Flood Factor?

Just when you thought you had found all the possible ways to categorize your home’s flood risk, enter: the Flood Factor. The Flood Factor is another method of categorizing the flood risk of individual homes. It was created by the non-profit First Street Foundation.

A property’s flood factor is an indicator of its 30-year risk of flooding. Properties with higher Flood Factors are either more likely to flood, more likely to experience high floods or both. Flood Factors range from 1 through 10 as follows ranging from: minimal (1) to extreme (10).[5]

While knowing your Flood Factor can be helpful, it’s worth noting that it isn’t used by the National Flood Insurance Program to calculate rates. The NFIP handles the majority of flood insurance policies in the U.S. According to a survey by the Insurance Information Institute, 78% of homeowners who determined they are at risk of floods purchased flood insurance—35 percent from a private insurance provider and 43 percent through the NFIP.[6]

Insurance requirements for floodplains

In the United States, flood insurance is mandatory for buildings in high-risk flood zones (100-year flood plain or zones marked by the letters A or V ) if the property owner has a mortgage from a federally regulated or insured lender. 

For properties in moderate-to-low-risk areas (500-year flood plain), flood insurance is optional but recommended. It’s worth noting that one in three flood-related insurance claims comes from low to moderate risk flood areas.[7]

To figure out if you need flood insurance, you can look at FEMA’s flood insurance rate map to determine your property’s flood zone. This is an important step when considering buying a new property, so you can factor in future insurance costs.

 

Calculating flood insurance rates

So does the letter marking of your flood zone determine how much you pay for flood insurance? Not exactly. While risk level is considered, insurance companies look at your property specifically and its individual rating factors to determine your rates.

Factors that affect rates include: 

  1. Flood risk: While not the only factor, higher rates apply in areas with higher flood risk, such as the 100-year flood plain.
  2. Type of coverage: Rates differ depending on whether the coverage is for the building, contents or both.
  3. Property value: Higher-valued properties may have higher premiums due to the greater amount at risk.
  4. Building characteristics: Factors such as the age of the building, construction materials and whether it has a basement affect rates.
  5. Elevation: Buildings in flood-prone areas that are elevated above the base flood elevation can often qualify for lower premiums.

For more information about how the NFIP specifically calculates flood insurance rates, visit this resource. 

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Wrapping up

Living in a flood plain significantly impacts the insurance requirements and rates for property owners. Understanding the type of floodplain your property is located in and the corresponding insurance requirements is essential for adequate protection.

Homeowners and businesses should regularly review their flood risk and insurance coverage to ensure they are adequately protected against potential losses due to flooding.

Sources

  1. 15 million U.S. homes are at risk of flooding — 70% higher than FEMA estimates. [CBS News]

  2. Climate change increases risk of flooding. [Floodsmart.gov]

  3. Flood maps. [FEMA]

  4. FEMA flood map service center. [FEMA]

  5. Flood Factor. [First Street]

  6. Homeowner perception of weather risk. [III]

  7. Flood maps [FloodSmart.gov]