Choosing a Flood Insurance Deductible
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A flood insurance deductible is the cost of flood damage you'll cover after making a flood insurance claim with your insurer, and it is one of many factors that contributes to the calculation of your flood insurance price. Many of these factors — such as the location and age of your home — cannot be changed, but you can usually choose your deductible. A higher flood insurance deductible will lower the cost of your flood insurance, but in the event that you make a flood insurance claim, you will receive a lower payment from your insurer to cover the damage.
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What is a flood insurance deductible?
If you have a policy for another type of coverage, such as homeowners insurance or auto insurance, you're likely familiar with insurance deductibles. A flood insurance deductible is the portion of damage costs you'll cover when you file a claim with the insurer.
Policies with a lower flood insurance deductible will have higher premiums, as your insurer will be on the hook for more of the damage in the event that a flood strikes your home. However, the reverse is true as well: Choosing a higher flood insurance deductible will reduce your flood insurance premium because it lowers your insurer's risk and increases your financial risk if you are struck by flood damage.
Flood insurance deductibles are separated into two components: building and contents. The building deductible applies to flood damage to the structure of your home, such as the foundation or flooring. The contents deductible relates to damage to your personal belongings within the structure of your home, such as your furniture or clothing.
For example, suppose you opt for a flood insurance policy with a $2,000 building deductible and a $1,500 contents deductible. One day, a torrential downpour leads to high floodwaters and extreme flood damage in your home. Your insurance adjuster estimates that damage to your foundation is valued at $5,000 and that damage to some of your personal items — your television, computer and furniture — is valued at $3,000. The total damage is valued at $8,000.
Flood insurance deductible payments…
Deductible | Total cost of damage | Payment by your insurer | |
|---|---|---|---|
| Damage to your building | $2,000 | $5,000 | $3,000 |
| Damage to your personal property | $1,500 | $3,000 | $1,500 |
If you file a claim, in this case, you will be responsible for $3,500 of the damage — $2,000 to cover your building deductible plus $1,500 to cover your contents deductible. Your insurer will pay you for the difference between the estimated $8,000 damage and your deductible; in this instance, $4,500. As this example illustrates, your insurer will pay for a higher share of flood damage if you choose a lower deductible. However, the lower your deductible, the higher your flood insurance premium will be.
How does your deductible affect the cost of flood insurance?
All else equal, choosing a higher deductible will make your flood insurance cheaper. The vast majority of flood insurance shoppers purchase a policy backed by the government's National Flood Insurance Program (NFIP), which has fixed premium discounts for certain levels of deductibles. If you're seeking a private flood insurance policy, you can check quotes online to calculate how your deductible affects your premium.
Whether you're purchasing NFIP-backed flood insurance or private flood insurance, be sure to talk with your insurer and figure out the best combination of deductible and flood insurance premium for your needs.
NFIP flood insurance deductibles
If you're purchasing NFIP flood insurance, your deductible and premium will be governed by NFIP standards. NFIP policies can include discounts of up to 40% off flood insurance premiums, depending on the building and contents deductibles you choose.
For instance, suppose you live in a single-family home located in a high-risk flood zone — which is the profile for most homes covered by NFIP policies. For these types of buildings, the NFIP has minimum deductibles of $1,000 for policies with $100,000 or less in building coverage and $1,250 for policies with $100,000 or more in building coverage. As this table shows, discount rates can vary depending on your deductible — ranging from 0% for a $1,000 deductible to as high as 40% for a $10,000 deductible, the maximum deductible for NFIP flood insurance.
Building deductible | Contents deductible | Initial discount |
|---|---|---|
| $1,000 | $1,000 | 0% |
| $1,500 | $1,000 | 1% |
| $2,000 | $2,000 | 7.5% |
| $3,000 | $2,000 | 10% |
| $5,000 | $3,000 | 20% |
| $10,000 | $10,000 | 40% |
For NFIP-backed insurance, increasing your contents deductible yields a bigger discount than increasing your building deductible. As a general rule, increasing your building deductible by $1,000 will discount your premium by 2.5%, while increasing your contents deductible by the same amount will discount your premium by 5%. However, you should note that the deductible discount is one of many calculations affecting your NFIP flood insurance premium, so your final price may not reflect these estimated discounts.
NFIP flood insurance deductible options could be limited if your property isn't in a high-risk area. For example, if you're in a flood zone designated as a low to moderate flood risk, you may qualify for a cheaper form of NFIP insurance called a Preferred Risk Policy. These policies are recommended because of their lower premiums. Additionally, you also gain added protection against flood damage given that these policy deductibles are fixed at one of two low levels, depending on your coverage limits. Policies with building coverage limits of $100,000 or less will have a fixed $1,000 deductible, and policies with building coverage limits over $100,000 will have a fixed $1,250 deductible. These deductibles apply separately to each type of coverage — building and contents.
When shopping for a flood insurance policy backed by the NFIP, several factors will determine your flood insurance deductible options. Before buying a policy, you should talk to your insurance agent about options for your property and get estimates for different deductibles.
Private flood insurance deductibles
If you're one of the rare flood insurance shoppers opting for private flood insurance, you can typically go online and find out how your deductible will affect your premium. Whether it's a national insurer such as The Flood Insurance Agency or a regional insurer such as TypTap, many major private flood insurers offer the option to calculate an instant quote online with adjustable deductibles.
Private flood insurers commonly offer a $2,000 deductible or a $5,000 deductible for each type of coverage — building and contents. Below, we've shown the discount to your premium by the Flood Insurance Agency, TypTap and the NFIP if you choose a $5,000 deductible instead of a $2,000 deductible.
In our sample, the discount obtained for a higher deductible with private insurers is not as large as the one you would get with the NFIP, although you should note that final premiums for NFIP flood insurance may be subject to other costs after discounts have been applied.